Spain Losses Millions in a ‘Carousel Fraud’ Case
In a series of coordinated raids, law enforcement agencies in five EU countries arrested 22 suspected members of an organized crime group that allegedly deprived the Spanish budget of more than 26.5 million euro (US$32,35 million) by misusing the European Union’s VAT rules.
In a so-called ‘carousel fraud’ scheme, scammers misuse EU
laws which provide that the movement of goods between member states is
VAT-free. They set up a series of fake companies that pretend to be trading
goods within the country and across borders, with one company eventually
claiming back VAT that has never been paid as they were zig-zagging the goods.
Europol and Eurojust supported the operation, in which 24
locations belonging to the crime gang were searched in Spain, the Netherlands
and Belgium.
Investigators “seized 16 high-end vehicles and 13 properties
worth an estimated 1.3 million euro ($1,58 million), and froze a dozen bank
accounts held by these criminals in 33 different financial entities,” according
to the statement.
“The syndicate used a sophisticated infrastructure to
facilitate such tax evasion spread over various countries in the past year and
a half… using so-called front companies in Spain, Slovakia, Romania, Belgium
and the Netherlands to pretend a trade in goods took place,” read the Europol
statement.
In fact, no goods were shipped to other countries'
businesses; instead, they stayed in the same Member State.
“Value added tax (VAT) has to be paid on these kinds of
transactions within the same country. By pretending a trade across the EU took
place, the VAT payment was avoided and the Spanish tax authorities were
defrauded,” according to Eurojust.
It added that a “string of shell companies had been set up
and trading documents had been forged for these purposes.”
Carousel fraud syphons billions from the budgets of EU
countries every year. The scheme is rather complex: A company in one EU country
first purchases VAT-free goods from a company in another EU state and then
sells them to a third company in the same country, charging the prescribed VAT
which it is later obliged to pay to the state.
However, before it does, the second company disappears - for
example, it files for bankruptcy - without declaring any taxes, turning into
what authorities have termed as a ‘missing trader.’
Now the third company sells the same goods to a fourth
business abroad, which would be another international deal, exempted from VAT.
This would mean that the third company would be losing money
as it can’t charge the fourth company the VAT it had paid to the missing
trader.
To encourage international trade, EU states compensate such
losses to companies which export goods.
Effectively, ‘carousel fraud’ severely affects public funds
since missing traders deprive state coffers of VAT while states compensate
exporting companies for their losses.
Very often, all of the businesses in the chain are owned by
the same people.
Europol and Eurojust said that the operation was conducted
following investigations into the swindle, which the Spanish authorities
launched at the end of 2019.
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