Slovak fraudsters committed tax fraud using a structure in which a flat was transferred from one company to another: the first company was supposed to pay VAT but never did, while the second company applied to the tax office for a VAT refund, which the tax office duly paid out. In the course of these activities, the fraudsters bribed and blackmailed tax officials, investigators, prosecutors and judges so that their fraud and criminal conduct would go unpunished.
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Protecting Your Business From VAT Fraud Risks
VAT fraud is a problem across Europe. It costs public budgets significant sums and distorts competition, because businesses that pay their taxes honestly have to compete with those that do not. Tax authorities have responded with stricter controls, and honest businesses can sometimes find themselves caught up in investigations if they unknowingly trade with fraudulent partners. Understanding the risks helps you protect your company.
How VAT Fraud Typically Works
Many VAT fraud schemes exploit the fact that VAT is collected in stages along a supply chain. In simple terms, one business charges VAT and then disappears without paying it to the state, while another business in the chain claims a deduction or refund of that VAT. Schemes can involve goods, services or property, and may cross several countries.
Why Honest Businesses Should Care
If a business is found to have participated in a chain involving fraud, tax authorities may question its right to deduct VAT, particularly if it knew or should have known about the fraud. This can lead to unexpected tax assessments, penalties and lengthy proceedings, even for companies that acted in good faith.
Practical Safeguards
- Check the VAT registration and history of new suppliers and customers
- Be cautious with deals that seem unusually profitable or rushed
- Verify that goods and services actually exist and are delivered
- Keep documentation showing the commercial substance of each transaction
- Pay suppliers through bank accounts registered with the tax authorities, where applicable
- Review control statements and other VAT reports carefully
The Role of Good Accounting
Accurate, well-documented accounting is one of the best defences. It allows you to demonstrate the legitimacy of your transactions if the tax authorities ask questions, and helps identify irregularities early.
Transparency Pays
Businesses that operate transparently, keep proper records and cooperate with tax authorities are in a much stronger position if a problem arises in their supply chain.
If you would like help reviewing your VAT processes, checking business partners or preparing accurate VAT reports, contact eTuls. Our accountants and tax specialists can help you reduce your exposure to risk.