Richard Cornelisse

Netherlands Intensifies Efforts To Combat VAT Fraud

In Tax News on 24/04/2012 at 4:27 pm

“Dutch State Secretary for Finance Frans Weekers has recently unveiled details of plans to give a new boost to the international fight against value-added tax (VAT) fraud.

During a keynote address to parliamentarians from the Benelux, Nordic, and Baltic countries, the Dutch state secretary underlined the fact that banks play a vital role in combating VAT fraud. Weekers announced that he is currently in talks with the Dutch banks to examine ways in which to exchange information on possible fraudsters with the country’s tax authorities.

While conceding that amendments would undoubtedly need to be made to existing legislation, Weekers insisted that it is also in the banks’ interest to clamp down on fraudsters, particularly given that, for example, fake businesses could have a serious impact on the banks themselves.

At international level, Weekers underscored the importance of the Benelux parliament (which only has an advisory role), the Baltic Assembly and the Nordic Council working together and collaborating in projects, in particular in combating carousel fraud.

The name carousel fraud derives from the typical circular chain of transactions set up by the criminals to maximise profits, and often entails sham paperwork and temporary companies to engage in the trades. In order to hide the fraud, the circle sometimes involves compliant honest traders.

Weekers stated that the speed at which legislation is implemented is another key factor. Highlighting the need for greater speed at European Union (EU) level, Weekers alluded to the fact that he has urged the European Commission to swiftly implement the necessary changes to EU legislation.

Concluding his remarks, Weekers emphasized that in addition to intensive cooperation at international level, there are now also many possibilities as regards new investigative techniques specifically designed to combat VAT fraud.

Outlining his intention to use these new techniques as quickly as possible, Weekers explained that it is now possible to extensively monitor and to analyze the behaviour of individuals who have registered their VAT number.

According to the Dutch finance ministry, these issues pertaining to VAT fraud were also discussed during a recent meeting between Weekers and the Belgian State Secretary responsible for combating social and fiscal fraud, John Crombez. Both ministers have agreed to work together in the fight against social and tax fraud, the ministry confirmed”.

Source: by Ulrika Lomas, Tax-News.com, Brussels Netherlands Intensifies Efforts To Combat VAT Fraud.

Why needed?

Here are a couple of 2012 examples:

  • “Nasir Khan had a successful accessories business, a jet-set lifestyle and reputation as a pillar of the community. But all that vanished in December when he was jailed for his part in a £250m VAT fraud. Jasper Jackson discovers how a 10-year investigation by HMRC led to his downfall. By Jasper Jackson – Mobile News March, 2012
  • “Two men have been jailed for their role in a plot to smuggle nearly 24 million counterfeit cigarettes into the Midlands, following an investigation by HM Revenue & Customs (HMRC). The conspiracy would have seen nearly £4 million drained from the UK economy through duty evasion.” HM Revenue & Customs, March, 2012
  • “A 34-YEAR-OLD man was yesterday convicted of a €680,000 VAT fraud after a 10-day trial that heard he produced 141 bogus invoices on non-existent transactions with imaginary sub-contractors.” By Gordon Deegan – Irish Times.com, March 2012
  • “A 64-year-old man has been arrested in a dawn raid into a £1 million suspected VAT fraud involving a Workington business.” News & Star, January 2012
  • “Yacht broker jailed over VAT fraud – A Dorset yacht broker who charged £210,000 VAT on the sale of six luxury yachts and then pocketed the cash has been jailed. James Williams, 51 was found guilty on six counts of cheating the public revenue and one count of false accounting. He was sent to prison for three years. John Cooper, HMRC Assistant Director Criminal Investigation said: Williams used his position as director of a yacht brokers to commit VAT fraud. He sold boats which had previously been supplied VAT-free for export to the Channel Islands, but failed to account for the VAT on their subsequent sale in the UK. This blatant attack on the tax system not only robbed the Exchequer of public funds, but is also unfair to those businesses that diligently abide by the rules. Tackling VAT fraud is a priority for us and we will not hesitate to pursue those who commit this type of offence. Anyone who has information about suspected VAT fraud can call the Customs’ Hotline on 0800 59 5000 or email customs.hotline@hmrc.gsi.gov.uk.” By Dick Durham of Yachting Monthly, March 23, 2012
  • “An antique jewellery trader who fraudulently claimed over £1.6 million in VAT repayments by creating fake invoices for expensive Rolex and Cartier watches has been jailed. Jonathan Uri Shohet (45) of Baldock, Herts, used stolen invoice books and fake invoices to claim back VAT from HM Revenue & Customs (HMRC) but had never purchased many of the watches he claimed repayments for.” HM Revenue & Customs, April 25, 2012
  • “A 15-STRONG GANG has been found guilty of an attempted £176m VAT fraud by engaging in complex mobile trading scams.Ring leader Dilawar Ravjani received a 17-year stretch in prison for his part in the scheme, the longest sentence handed down in the UK for this type of fraud.  The gang claimed it sold four million mobile phones worth £1.7bn, despite failing to prove the existence of many of these, while about 250,000 were not yet launched in the UK. In order to give the operation a veneer of legitimacy, more than 5,700 false business transactions were created in order to claim large amounts of VAT. Confiscation proceedings are now underway to recover any assets the gang members received as a result of this crime. The actual tax loss totalled £107m.” Read more: Carousel fraud gang jailed – Accountancy Age, July 12, 2012
  • “A senior barrister, who built up an outstanding VAT bill of £600,000 over a 12-year period, is to face criminal charges. Rohan Anthony Pershad QC between June 1999 and September 2011is accused of charging for, and receiving, VAT payments, which he ‘knowingly’ failed to declare to HMRC. The Crown Prosecution Service has recommended one charge of cheating the public revenue be brought against Pershad, and will appear at Highbury Corner Magistrates Court on 2 August. Keri Ashworth-Beaumont, prosecutor for the CPS Central Fraud Division, said: ‘The evidence suggests that he charged and received VAT payments on services he provided whilst practising as a barrister but which he knowingly failed to declare or pay to Her Majesty’s Revenue and Customs. This is an offence contrary to common law.‘This decision to prosecute was taken in accordance with the Code for Crown Prosecutors. After careful consideration of all the evidence, I am satisfied there is sufficient evidence for a realistic prospect of conviction and it is in the public interest to prosecute this case.” Accountancy Live – CPS charges barrister over £600k VAT bill
VAT fraud

If a business charges you VAT it must be VAT registered and must declare any VAT it charges to HMRC. Some businesses deliberately avoid registering for VAT, thereby gaining an unfair advantage over their competitors. Others may either be bogus or may lie about the amount of VAT that they owe. You might know that a business is not declaring all the VAT they’re charging, or you might think that they’re not because they:

  • ask you to pay them in cash and are reluctant to provide an invoice
  • request that payment is made to someone other than the business
  • offer a discount for cash and are reluctant to accept cheques or credit cards
  • offer goods for sale at substantially below market value
  • put money into an open till drawer without ringing up a sale

From Reporting tax fraud

Missing Trader Intra-Community VAT fraud

‘Missing trader’ fraud involves obtaining a VAT registration number in the UK for the purpose of purchasing goods free of VAT in another EU Member State. These goods are then sold in the UK at a VAT-inclusive price. After which, the trader will go missing or default, without paying the VAT due to HMRC. Another form of this type of fraud is called ‘carousel fraud’. This involves trading the same goods around contrived supply chains within and beyond the EU. The goods will re-enter the UK on a number of occasions with the aim of creating large unpaid VAT liabilities and fraudulent VAT repayment claims.

From Reporting tax fraud

Estimated The Amounts Of Fraud

According to a PwC report: “11 percent of VAT revenue is lost annually through fraud – principally ‘missing trader’ or ‘carousel fraud’ – which equates to in the region of €100 billion.

See also the comment received about this estimate in my blog: About US Tax Reform – Larry Lindsey, Former Fed Governor: “a Value Added Tax Should Be on the Table”

Earlier blog postings

Richard Cornelisse is CEO of the KEY Group and worked previously as Big4 Partner in the Tax Performance Advisory and Indirect Tax Practice and blogs on Tax Function Effectiveness and Tax Control Framework developments.

  1. […] Netherlands Intensifies Efforts To Combat VAT Fraud […]

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