Carousel Fraud Research Articles

Polski model prowadzenia śledztw w sprawach oszustw podatkowych popełnianych metodą karuzelową

This article is devoted to an analysis of the Polish model of conducting an investigation in cases of tax fraud committed with the carousel method, clearly indicating the superiority of the offensive (dynamic) type over the static (conservative) type. It concerns the economic evolution of an organized crime and discusses the carousel mechanism, raising the issue of carousel crimes and their legal qualification. The article presents the main features of a dynamic and static model through the prism of specific goals facing investigators in this type of case. Finally, it presents selected methodological guidelines aimed at the most extensive possible implementation of the model of conducting an investigation preferred due to the level of activity in cases of tax carousel fraud.

Blockchain solutions for carbon markets are nearing maturity

Blockchain solutions for carbon markets are nearing maturity

Article: ‘VAT Gap’ Estimation: Distinguishing Between Informality and Fraud

The value added tax (VAT) remains a primary source of budget revenues across Europe. Consequently, compliance with it became critical for the fiscal security of Member States. Consequently, the issue of VAT compliance received EU level attention, and quantitative indicators – known as ‘VAT gaps’ – were produced for particular countries and the entire EU. Unfortunately, the most common top-down approach to the ‘VAT gap’ calculation delivers only the aggregate estimate of noncompliance. However, designing effective policy interventions requires a more detailed diagnosis as countering organized crime VAT fraud schemes requires different strategies than the shadow economy. This article proposes a simple approach to the top-down ‘VAT gap’ estimation that would enable distinguishing between the two categories by building upon the minimal set of data available to the tax authorities. An analysis of the Polish ‘VAT gap’ experience confirms the validity of proposed method, facilitating its application in a study encompassing multiple countries. ‘VAT gap’, top-down methodology, shadow economy, VAT fraud, carousel fraud

Should the Italmoda Jurisprudence Apply to Carousel Fraud Involving Services? The ECJ's Pending Climate Corporation Emissions Trading Case

In the well-known Italmoda case,the ECJ decided that the exemption (zero rate) of the intra-Community supply should be denied when the supplier “knew or should have known” that, by his supply, he was participating in a transaction connected with fraudulent evasion of VAT. In the pending Climate Corporation Emissions Trading case, the question is raised whether a similar approach should apply to intra-Community supplies of services. In this article, the author suggests that this pending case highlights the urgent need for a comprehensive solution to the issue of carousel fraud in the European Union.

The VAT at 100: A Retrospective Survey and Agenda for Future Research

We take stock of what is known about the consequences of actual value-added tax (VAT) systems, nearly 100 years since its conception. We benchmark it to the tax it most often replaced—the retail sales tax (RST). We do this not because we advocate a return to the RST, but because it allows us to evaluate the performance of two tax instruments in actual practice instead of comparing them to their idealized versions, which are never achieved. Doing so highlights different areas of focus than traditional comparisons to the “good” VAT. Like the RST, the VAT is weak at the final stage and technological advances that ameliorate VAT issues could also be applied to the RST. VAT introduces new evasion opportunities not possible in an RST such as invoice mills and carousel fraud. We propose new metrics and a research agenda to evaluate the “health” of the real VAT.

Carousel fraud in terms of price manipulation

PurposeThe purpose of this paper is to analyse the effects of carousel fraud on the average price of goods, as one of the negative economic aspects of carousel fraud.Design/methodology/approachThis paper is primarily based on the description of selected legal cases and the modus operandi of carousel fraud, the analysis of legal texts (legislation and judgments of courts) and the discussion, from the point of view of price manipulation.FindingsThe results of the analysis specify the negative impact of carousel fraud in the form of the distortion of reported average prices and suggest that the authorities should monitor usual or fair prices to detect cases where there is a risk of carousel fraud.Originality/valueThis paper brings new insight into the issue of carousel frauds by understanding the principle of carousel fraud, the motives for it, and the possibilities for detecting this type of tax fraud, which is necessary to prevent tax evasion and to preserve a state’s income.

The volume of MTIC fraud between Poland and Czechia in electronic devices trade: general method of carousel fraud estimation

The volume of MTIC fraud between Poland and Czechia in electronic devices trade: general method of carousel fraud estimation

Is the Value Added Tax System Sustainable? The Case of the Czech and Slovak Republics

The value added tax is an important part of revenues of the European Union and its Member States. The aim of the paper is to statistically analyse the extent of positive impact of selected legislative measures introduced in the fight against tax evasion and discuss subsequently the sustainability of the current value added tax system in the European context. The analysis was conducted for the Czech and Slovak Republics, two traditionally strong trading partners, and for an important commodity, copper. In the analysis, regression methods applied to official time series data on copper export from the Czech Republic to Slovakia were employed together with appropriate statistical tests to detect potential significance of the new legislative tools, the value added tax control statement and reverse charge mechanism. Moreover, the study considers fundamental economic factors that affect foreign trade in parallel. Based on the analysis, there is sound evidence that the major historical turnaround experienced by the time series took place due to the then forthcoming legislative measures that were to restrain the possibility of carousel frauds. The results confirm the positive impact of the measures and also suggest the necessity of more systematic changes in the tax system.

A karusszel típusú csalások elleni küzdelem fegyvernemei és azok célpontjai

Carousel fraud is one of the basic schemes of cross-border organised VAT the fight against it became current, and it is at the same time a challenge for the National Tax and Customs Administration and its predecessors. This article aims to introduce this fraud scheme and the tax administration-, law enforcement- and criminal investigation toolkits (‘branches’) used in combating it, and to allocate each tool (‘arms’) to the efforts (‘targets’) made to eradicate the relevant elements characterising the working mechanism of carousel fraud. Additionally, I also intend to point out the necessity of measurement of carousel fraud in criminal statistics, the relevance of which, in addition to the general feedback, lies in the application of general reverse taxation implemented in the EU on a temporary basis not long ago.

Rozwiązania prawne wprowadzone w latach 2015–2019 w Polsce w celu uszczelnienia systemu podatku od towarów i usług – analiza i ocena wpływu na dochody budżetowe, pewność obrotu gospodarczego i koszty prowadzenia działalności gospodarczej

This paper investigates the effects of legal solutions introduced to the VAT system in Poland in 2015–2019 to prevent VAT fraud, primarily carousel fraud, which caused the so-called tax gap. The article begins with chron­ological presentation of these solutions. In the second part the author formulates the criteria of certainty of business transactions in relation to VAT and on this basis he analyses the presented solutions. Next, he considers the costs incurred by the VAT payer to meet the obligations or requirements established by the introduced regulations. In the final section the effectiveness of the introduced solutions from the point of view of the state budget revenues from VAT is assessed.

The Impact of Specific Reverse Charge on Waste and Scrap on Tax Revenues in the Czech Republic

The paper is focused on VAT evasion and especially carousel frauds. It describes the types of VAT evasion, methods of its estimation and measures taken by the European member state to fight it. The aim of the article is to develop a reasonable method for assessing the volume of carousel fraud in the Czech Republic. It uses ex-post calculation of the impact of a specific reverse-charge implemented in the Czech Republic on waste and scrap in 2011. The analysis employs trade balance data of the Czech Republic published by the Czech Statistical Office and a model of the carousel fraud to estimate the size of the carousel fraud existing prior to the implementation of the specific reverse charge in the CR. The volume of the supposed carousels in waste and scrap present in the period from 1 April 2010 to 31 March 2011 in the CR is according to the authors EUR 56 mil. (approx. CZK 1.4 bn.).

A bűnszervezetek és a költségvetési csalás kapcsolata Magyarországon

Magyarországon a rendszerváltást követő években korábban soha nem tapasztalt bűnözési hullám söpört végig. A bűnözés új dimenziója nyílt meg azzal, hogy az elkövető egy egész szervezet súlyát, erejét tudta maga mögött.Kezdetben a szervezett bűnözés egy része jellegzetesen a magas adótartalmú (jövedéki) termékekre, továbbá a jogosulatlan adó-visszaigénylésekre és más gazdasági jogsértésekre koncentrált. Az elkövetők a legális tevékenységgel elérhetőnél, lényegesen magasabb profitot tudtak megszerezni. 2015-től érzékelhetően növekedtek a bíróságokon az úgynevezett körbeszámlázásos ügyek. Ezekben az ügyekben számlabefogadó és kibocsátó gazdasági társaságok láncolatai szerepelnek, amelyek jelentős károkat okoztak az állami költségvetésnek. Ezek az esetek gyakran éveken keresztül felderítetlenek maradtak, míg végül a nyomozó hatóságok fel nem fedték azokat. Mind a vád, mind pedig a bíróság jogerős döntése szerint ezeket a cselekményeket bűnszervezet keretében valósították meg. Az igazságügyi eljárások tapasztalatai alapján a bűnszervezeteket mielőbb szét kell bontani. Így a legkritikusabb kérdés az, miként csökkenthető az ehhez szükséges idő?

Odhady daňových úniků v České republice založené na analýze nezjištěné ekonomiky

The aim of the paper is to estimate the total tax evasion in the Czech Republic in 2008-2015. For this purpose, an analysis of non-observed economy as an alternative method of tax evasion estimation is used. The presented method works as follows: the detailed segmentation of non-observed economy enables to match various types of hidden or concealed income with corresponding liable taxes and therefore to estimate the amount of tax due. The results show that tax evasion is increasing in the Czech Republic (with the exception of 2012) reaching 71 bn CZK in 2008 and more than 120 bn CZK in 2015. This approach also allows us to divide the total tax evasion between direct and indirect taxes. From this point of view, the higher share belongs to direct taxes in the Czech Republic. This, however, may be caused by the nature of non-observed economy which does not cover all types of tax fraud, namely carousel frauds. That is why the presented estimates should be regarded as a bottom level of the total tax evasion in the Czech Republic.

Value Added Tax and Carousel Fraud Schemes in the European Union and the Slovak Republic

The aim of this contribution is to elaborate on the institute of VAT frauds, with emphasis on Carousel frauds. This document provides compact information concerning VAT fraud schemes within the European Union, problems within the EU VAT system, which was put into force in 1993 and strategises how to tackle VAT frauds as well as de lege ferenda proposals, especially in a view of the European Commission’s proposed solution on the EU’s common system of VAT. This article focuses on details of functioning of the EU VAT system, it explains relevant sections of the Slovak Penal Code Act pointing out legal issues in practise including examples of criminal conducts falling within the definitions of relevant sections of the Slovak Penal Code Act. This article demonstrates patterns of how carousel frauds are committed, how they evolved as a consequence of globalisation, economic changes, elimination of internal borders and electronic services. Authors chose the very actual topic of carousel frauds in order to reveal the commission of VAT evasions, focus on existing problems and to emphasise the need for improvement of the European Union legislation in the field of VAT frauds. The contribution aims at proposing the solution for minimising the VAT gap. The article utilises a descriptive approach to explain into detail functioning of the carousel frauds due to the fact that patterns used are complicated using a lot of companies to coved fraudulent transactions. Many times legal businesses are used to confuse law enforcement agencies as well as tax authorities of Member States when investigating commitment of VAT frauds e.g. Missing trader intra-Community fraud. In practise even courts have problems to determine which criminal offence of the Slovak Penal Code Act was committed. The article also provides in its Annex I the citations of the Slovak Penal Code Act which is beneficial to experts from Member States of the European Union to compare their jurisdiction to laws applicable in the Slovak Republic to bring the legislations closer or to subject the Slovak legislation to criticism.

How to Avoid the Usual Price Rule on the Fuel Market in the Czech Republic

The paper deals with value added tax evasions on the fuel market in the Czech Republic. This commodity is used in carousel fraud. In the chains of taxpayers there are missing traders who fail to meet their tax obligations. Their business strategy is based on quick sales at unusually low prices which do not allow honest parties to compete. Tax administrators should focus on unusual prices which constitute a higher probability of tax evasions. This paper aims to verify whether or not there are ways to evade the measure, focusing specifically on applying methods which could help achieve lower sales prices while avoiding the possibility to require unpaid tax from the recipients of taxable supply. The weaknesses thus found are described and demonstrated in more detail in the paper. During a research some ways were found which could be used for avoiding this specific measure. Methods of Cash Back and Free Shipping were identified and described.

Carousel fraud in fuel and its solution from the viewpoint of the Czech VAT Act

Carousel fraud in fuel and its solution from the viewpoint of the Czech VAT Act

Study to Quantify and Analyse the VAT Gap in the EU-27 Member States

Only in 2013 the EU Member States lost approximately €168 billion in VAT revenues due to non-compliance, according to a recent study conducted by the Center for Social and Economic Research (CASE) for the European Commission. The report: “Study to Quantify and Analyse the VAT Gap in the EU Member States” examines the reasons for and reality of the VAT underperformance across twenty six Member States* .Compared to 2012, EU26 saw €2.8 billion increase in VAT-GAP in absolute numbers. Overall, 15 Member States decreased their VAT Gaps, with the largest improvements noted in Latvia, Malta, and Slovakia. However, at the same time 11 Member States saw an increase in the VAT Gap, with the largest deteriorations in Estonia and Italy.Emphasizing the diversity of the EU’s tax administrations, the study estimated that the VAT non-compliance in 2013 ranged from 4% in Finland, the Netherlands, and Sweden, to as much as 41% in Romania.“The overall underperformance was due to unfavorable economic environment, as the GDP of the European Union in 2013 was nearly stagnant.” – said Grzegorz Poniatowski, one of the report’s authors – “An increase in VAT gap in 2013 can also be explained by the increasing phenomenon of ‘missing trader frauds’ and carousel frauds”.The report also provides new and expanded evidence on the Policy Gap for the EU-26. The Policy Gap is an indicator of the additional VAT revenue that a Member State could theoretically collect if it applied standard rate to all consumption of goods and services supplied for consideration. The study shows that several Member States, including Belgium, Finland, France, Greece, Ireland, Luxembourg, Netherlands, Portugal, Spain, and the United Kingdom, could collect up to 50% more revenue if they applied a unified tax on all consumption.

Tax fraud: a socially acceptable financial crime in France?

Purpose – The purpose of this paper is to point out that tax fraud, recognized as a scourge by both governments and responsible tax-payers, hits public finances hard with an inevitable knock-on effect on general welfare. Based on this observation, key players interviewed for this paper, including magistrates, a trade unionist and a high-ranking official, will attempt to provide some possible solutions to help understand why significant sections of public opinion consider this very particular form of financial crime to be legitimate, largely inspired by the notion that tax fraud and evasion are socially acceptable and even seen as a national sport in certain countries. Design/methodology/approach – The survey was carried out among 20 tax officials, a trade unionist, two magistrates and a high-ranking civil servant. The interviewees were carefully chosen for their ability to provide valuable insights into the reasons behind the lenient treatment of fraudsters by a state lacking the necessary means and structures to fight this crime. Findings – The fight against tax fraud has clearly sparked numerous controversies around evaluation, scope, criminal perpetrators and cooperation between services. Social implications – Tax fraud, an offence committed with the aim of avoiding taxation or reducing the amount of tax to be paid, ranges from low-level illegal activity, such as undeclared work to make ends meet, to more serious offences, such as value-added tax carousel fraud. All the unpaid tax resulting from such blatant flouting of the law represent a serious loss of revenue for the state and local authorities. Originality/value – The fight against tax fraud is crucial in determining taxpayers’ acceptance of the contribution required for state expenditure and investment. In a country such as France, where tax fraud is almost a national sport, combating this scourge will help restore the state’s budgetary sovereignty by making it central to people’s concerns about redistributive justice, tax equality and fair access to public goods.

Všeobecný přenos daňové povinnosti a cash-flow veřejných rozpočtů České republiky

Reverse charge is currently used as a measure against VAT carousel fraud. Its extension to all goods and services is discussed among the tax policy makers at the national and EU level. Opponents of general reverse-charge argue that this method of VAT collection would completely change the nature of the VAT system. One of the practical drawbacks of reverse charge is the negative impact on the cash flow of the public budgets. This article quantifies the average monthly financing available to the State thanks to delayed repayments of input tax to VAT payers under the normal VAT system. This amount equals to almost 53 billion CZK and represents the negative impact of the general reverse charge on the cash flow of the public budgets. A change in the deadline for remitting VAT or introducing VAT advances to be paid prior to the final tax payment would reduce the negative influence on public finances.

Carousel Frauds in the Czech Republic

Collection of value added tax represents for all EU Member States an important part of the state budget, the share of which is mostly higher than 20%. Growing state expenses and endless economic and financial crisis have resulted in deep dependence on EU Member States revenues from VAT. Organized groups of tax fraudsters abuse the loopholes in current tax legislation to achieve unjust enrichment. This paper describes the practices of tax frauds in VAT collection most frequently used in the Czech Republic, summarizes measures adopted by tax administration and evaluates the effectiveness of their application.