EU Uncovers Multi-Million Euro VAT Fraud

by Ulrika Lomas, Tax-News.com, Brussels

14 November 2008

A large-scale fraud scheme relating to imports of textiles and shoes from China has been discovered by the European Anti-Fraud Office (OLAF) in co-operation with the Austrian authorities.

Following close co-operation between the Austrian Finance Ministry, the Customs investigation services in Vienna and Wiener-Neustadt and OLAF, the cover was blown of a band of Chinese, Hungarian and Austrian citizens who have smuggled large quantities of textiles and shoes from China into the European Union by means of heavily undervalued and false invoices. The products involved included jeans, t-shirts and other clothes as well as various kinds of footwear including sports shoes and casual shoes.

The actual financial impact in customs duties and VAT in the present case cannot be accurately established yet, as the investigations are ongoing, but will run to millions of euros. In addition, quantitative restrictions on the importation of Chinese textiles were circumvented.

The goods were cleared through customs in the member state of arrival without paying the VAT and were then transported on to the destination member state. In this scheme the majority of consignees are either non-existent or trade for only a very short period of time.

The overall quantity of textiles and footwear affected by this type of fraud is estimated to be around 600,000 tons, resulting in lost revenues of EUR200m.

Five Hungarians and three Chinese nationals were detained as part of the operation; arrest warrants were issued for two other Chinese women. The Chinese members of the gang purchased items, mostly clothing, in the Far East, then imported them to Slovakia. Police froze 10 bank accounts and raided more then twenty properties, finding unlicensed firearms, hundreds of rounds of ammunition and millions in foreign currency.

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