Carousel fraud

What it means

Carousel fraud is an organised VAT fraud exploiting the exemption for supplies of goods between EU states. The goods, often electronics, mobile phones, fuel or metals, travel in a circle through several companies in different states, sometimes the same goods over and over.

The key link is a company called the missing trader, which acquires the goods from the EU without VAT, sells them domestically with VAT, does not pay the tax and disappears. Further companies in the chain deduct the VAT on their invoices, and the last one ships the goods exempt to another state and claims an excess deduction.

The front companies in the chain often have a straw man as director and exist for only a few months. The state loses the tax the missing trader never paid and at the same time refunds it to the company at the end of the chain.

How it works in practice

The tax office now detects these schemes by matching control statements, VIES data and information from other EU states. On suspicion it withholds excess deduction refunds, opens audits and examines whether the company knew or could have known of the fraud.

An honest company can be drawn into the chain unknowingly, for example as a buyer getting goods cheaper. Courts deny the input VAT deduction even to those who knew or should have known they were taking part in fraud, so for new suppliers we check their history, address, director and tax reliability index.

The VAT Act also makes a customer liable for the supplier’s unpaid VAT if it knew or should have known it would not be paid, especially at a price markedly different from the usual market price. For high-risk goods we therefore recommend paying the VAT directly into the supplier’s personal account with the tax office.

What to watch out for

Warning signs include an unusually low price, a new supplier with no history or staff, a virtual office, quick deals in large volumes and payments to third parties or abroad. When several appear at once, the deal should be checked before paying.

Taking part in carousel fraud means not only back VAT and a penalty but also prosecution for tax evasion and wrongfully obtaining an excess deduction. Ignorance protects only if the company proves it did everything that could reasonably be expected of it.