Europol: Six Arrested and Dozens Indicted in VAT Fraud Bust
Portuguese and Spanish police arrested six and indicted 32 people in a two-day bust of a cross-border crime ring practicing VAT fraud, Europol announced.
Local law enforcement officers raided 142 homes in the two Iberian nations on Tuesday and Wednesday of last week. Apart from the six arrested, authorities indicted 18 companies and 32 individuals of Pakistani and Portugese origin for their participation in the fraud scheme.
The operation led to the seizure of accounting documentation records, approximately 20,000 euro (US$22,814) in cash and jewels worth about 45,000 euro ($51,334), Europol said.
“The suspects set up a complicated scheme to simulate intra community deliveries with zero rated VAT. The criminal infrastructures were based on traders and conduit companies based in Spain and Portugal,” explained Europol.
“By not paying VAT to the Portuguese treasury, the suspects were able to gain a 23% margin (the VAT rate in Portugal). They used this margin to lower the price of the goods, which they were selling on the black market, mainly food and alcoholic beverages,” the statement said.
Through the scheme, the tax loss was estimated to have been some four million euro ($4.6 million).
The operation conducted what is called Missing Trader Intra-Community (MTIC) fraud.
“The basic MTIC fraud model involves organised, sophisticated activities that seek to exploit differences in how VAT is treated in different EU Member States,” a Europol brief on the crime explains.
The crime takes advantage of legislation that allows trading across Member State borders to be VAT free. VAT is applied only to sales within a Member State at the applicable domestic rate which allows traders to import goods without accounting right away for the VAT.
Any VAT charged on sales should be declared and paid to the Member State’s revenue authority. In simple MTIC cases, fraudsters sell the goods, charge the VAT to buyers without remitting the value to the tax authorities, the brief explained.
Europol nonetheless stressed that VAT fraud is not a victimless crime.
“Missing trader intra-community fraud (MTIC) does not affect’s only governments, but all citizens. The billions of euros that organised crime gangs defraud from taxpayers through this scam fraud scheme are ultimately robbing citizens affecting the funding of vital public services,” read the Europol’s statement.
VAT fraud is estimated to cost the EU 60 billion annually in tax losses.
“A cross-border crime per definition, the effective fight against it requires internationally coordinated operations pulling together the affected Member States, Europol and trusted partners,” said Europol.