Germany Joins UK In VAT Fraud Crackdown

by Ulrika Lomas, Tax-News.com, Brussels

30 August 2006

The German authorities are reportedly set to make a number of arrests this week as part of a joint investigation with the UK into value-added tax fraud.

According to a report in UK business daily, the Financial Times, the investigation, dubbed by the law enforcement authorities as 'Operation Sunrise,' has been tracking the movement of certain goods such as mobile phones and computer chips across the German-Swiss border, in an effort to crack down on carousel fraud.

Carousel fraud, officially known as missing trader intra-community fraud, has been affecting governments across Europe. In its simplest form, this type of fraud involves obtaining a VAT registration number in one EU member state for the purposes of purchasing goods free from VAT in another member state. The goods are then sold at a VAT-inclusive purchase price after which the perpetrator goes 'missing' without paying the VAT due.

In its more abusive form, the fraud involves the same goods being traded around contrived supply chains within and beyond the EU, re-entering member states on a number of occasions with the VAT being stolen each time - the so-called carousel.

Although the impact of the crime is difficult to quantify, recent UK trade data suggested that the extent of the crime has grown alarmingly in recent years, and it has been estimated that the crime reduces Germany's VAT revenues by 2%.

It is believed that Switzerland - not a member of the EU - has become a popular conduit for fraudsters importing goods into Europe with the intent of committing carousel fraud, accounting for the concentration of surveillance by the German investigators of vehicles crossing the German-Swiss border.

According to the FT, German officials were able to identify suspect imports by comparing identification numbers with those on a database of mobile phones that had recently been exported from the UK.

Earlier in the month, the UK tax collection agency, HM REvenue and Customs, announced that 22 people across the United Kingdom had been detained in the country's biggest ever operation targeting carousel fraud.

The department has a 400-strong team dedicated to investigating VAT fraud, and the operation was supported by 100 police officers, reflecting the seriousness of the government's attitude towards the crime. The UK Treasury has estimated that carousel fraud cost it up to GBP1.9 billion (EUR2.8 billion) in revenues in 2004/5.

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