The EU system for levying VAT attracts more and more fraudsters, who abuse the system and leave EU Member States with massive tax losses. Inventive schemes are especially common in intra-community supplies of goods. Naturally the EU Member States actively try to monitor and combat VAT fraud, designing and prescribing more stringent rules for trading goods within the EU. Tax authorities have become more alert and initiate more investigations. But these stringent rules and investigations also affect companies that are operating in good faith and such companies can become involved in VAT fraud with severe adverse consequences, including harsh VAT audits that are costly, time consuming and may lead to liability for the ‘disappeared’ VAT.
VAT fraud is complicated and inventive in structure. In general there are two main types:
Companies operating in good faith may experience trouble such as liabilities and tax audits when involved in fraud. To detect and prevent such involvement, companies can take the following steps:
In some specific situations a company needs to pay special attention to ensure it does not get involved in VAT fraud. A company should be alert to:
This is a brief description of the necessity to prevent involvement in VAT fraud. The information of how to do it is not described in full as the best approach for each company depends on the nature of the individual company, the goods in which it trades and the market segment it operates in. This is nevertheless an indication of what a company needs to be aware of to avoid fraud and it is always better to be safe than sorry.