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Netherlands Tackles VAT Carousel Fraud In Metal Industry

by Ulrika Lomas,, Brussels

16 November 2012

The Dutch finance ministry has recently warned entrepreneurs in the country’s metal and electrical industries to look out for value-added tax (VAT) fraud in the trade of copper cathodes.

According to the finance ministry, the Dutch Fiscal Intelligence and Investigation Service (FIOD) has recently received information from officials in the UK and Germany indicating that VAT fraud is currently being committed with this electrical component.

To prevent honest entrepreneurs from falling victim to fraudsters, the finance ministry will send a letter to the 150 entrepreneurs currently dealing in the trade of copper cathodes. In the letter, the ministry will explain how to recognize signs of VAT carousel fraud. Businesses are also encouraged to report any suspicions to the dedicated tax information line for entrepreneurs.

The ministry warned that entrepreneurs who unwittingly become involved in VAT carousel fraud may have to deal with the unpleasant consequences, emphasizing that they may be denied application of the deduction for input VAT.

Dutch Financial State Secretary Frans Weekers insisted that tackling VAT fraud is a top priority for the country’s tax authorities and for the FIOD, underlining the need to ensure that honest entrepreneurs are not affected by the manipulative practices of malicious parties. The tax authorities are keeping a close eye on the situation, Weekers stressed.

VAT carousel fraud involves a fraudulent seller who charges VAT, although does not transfer the tax to the country’s tax authorities. The fraudulent party then suddenly disappears without trace, making it difficult to recover the lost revenues. The purchaser of the goods is then able to deduct input VAT, meaning that the tax authorities incur further losses.

The name carousel fraud derives from the typical circular chain of transactions set up by the criminals to maximize profits, and often entails sham paperwork and the creation of temporary companies to engage in the trades. In order to hide the fraud, the circle sometimes involves compliant honest traders.

Back in June, Weekers announced measures to prevent cross-border VAT fraud in the trade of electronic goods in the Netherlands.

The measures were in response to a recorded rise in VAT carousel fraud, involving in particular the trade of mobile telephones, games consoles, and computer parts, and which has resulted in significant losses in tax revenues.

To prevent this type of fraud from occurring, Weekers proposed introducing a VAT reverse charge mechanism for the goods in question by June 1, thereby rendering carousel fraud impossible, as the charge is shifted from the seller to the buyer.

Commenting on these proposals at the time, Weekers said that in this way bona fide trade can take place unhindered while VAT fraud will be prevented to ensure that there are no negative effects for the treasury.

TAGS: compliance | tax | business | value added tax (VAT) | tax compliance | Netherlands | tax avoidance | law | entrepreneurs | United Kingdom | enforcement | Germany

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