EU Authorities Indict Eight in Multimillion VAT Fraud

The European Public Prosecutor’s Office (EPPO), the European Union’s independent prosecutor, has indicted eight individuals on charges related to a value-added tax (VAT) fraud scheme responsible for about €80 million in damages. The fraud is said to have been perpetrated by trading face masks and high-end vehicles via a complex network that included shell companies in multiple countries, including Czechia, Poland, and Germany. 

Collaborative Investigations

The scheme’s turnover was allegedly ran into hundreds of millions of euros. According to EPPO’s investigation, it used individuals struggling economically as straw men. It is also said to have used missing trading firms, carousel transactions, cross-border transaction VAT loopholes for EU member states, and fraudulent invoices to evade tax responsibilities while facilitating vehicle trades. A Polish currency exchange front company appears to have been used to launder and distribute the funds.

The Public Prosecutor’s Office of Berlin worked in parallel with the EU’s investigation, looking into additional activity that didn’t fall under EPPO’s specialization. The investigations covered multiple countries, including Croatia, Czechia, France, Germany, and Poland. These investigations resulted in asset seizures worth €5.2 million, including luxury vehicles, bank accounts, and real estate.

VAT Fraud Trends Using Luxury Vehicles

Trading in high-end vehicles is a popular scheme for VAT fraud and customs duty evasion. EPPO has recently investigated at least three other criminal cases involving luxury car trading this year. In January, the EPPO investigated the smuggling of inaccurately-declared luxury vehicles to evade customs duties. The vehicles – worth an estimated €14.8 million – were imported into the EU from non-EU countries in jurisdictions such as Russia and several Asian countries. The scheme resulted in around €3.5 million in lost customs duties.

In June, over 2000 police, customs, and tax investigators across Belgium, Germany, Hungary, Italy, the Netherlands, Portugal, and Spain collaborated on an action day related to Investigation Huracán. In response to discovering over 10,000 luxury vehicles traded in a VAT fraud scheme worth €225 million, authorities made arrests, asset seizures, and more than 450 searches. The scheme’s damage was estimated at €38 million or more.

In July, EPPO’s Paris office collaborated with Bulgaria’s National Investigative Service and General Directorate for Combating Organised Crime to investigate the illegal trade of high-end vehicles. The activity, said to date back as far as 2018, was thought to be laundering criminal proceeds and evading VAT. The probe seized foreign currencies, gold, and €73,000 in cash. Authorities estimated the damage caused to the EU at €11 million or more.

Key Takeaways

Firms seeking to cover tax fraud, including VAT fraud, in their fraud and anti-money laundering initiatives can consult the European Commission’s study, Possible Solutions for Missing Trader Intra-Community Fraud. Some red flags cited in the guide include:

• Traders regularly selling at a loss (which would be recuperated when the company pocketed the VAT fees after evasion).
• Companies that were previously inactive suddenly beginning to trade.
• Payments being made before a trade occurs.

The full report discusses the risks posed by VAT fraud and its potential solutions.