The European Public Prosecutor’s Office (EPPO) has announced the indictment of eight individuals in connection with a sophisticated value-added tax (VAT) fraud operation that has caused approximately €80 million in damages.
This intricate scheme revolved around trading high-end vehicles and face masks, using a complex web of shell companies across multiple European countries including Czechia, Poland, and Germany.
The Complex Network and Collaborative Investigations:
The fraudulent scheme exhibited a substantial turnover that is estimated to have reached hundreds of millions of euros. EPPO’s investigation reveals that the scheme exploited economically vulnerable individuals as straw men.
Employing various tactics such as missing trading firms, carousel transactions, cross-border transaction VAT loopholes, and fraudulent invoices, the criminals manipulated tax responsibilities and facilitated vehicle trades while avoiding tax obligations.
A Polish currency exchange front company was apparently utilized to launder and distribute the ill-gotten funds.
The Public Prosecutor’s Office of Berlin worked in tandem with the EU’s investigation, delving into aspects that fell outside EPPO’s primary focus. The collaborative efforts extended across multiple countries, including Croatia, Czechia, France, Germany, and Poland.
These joint investigations resulted in the seizure of assets valued at €5.2 million, encompassing luxury vehicles, bank accounts, and real estate properties.
VAT Fraud Trends Involving Luxury Vehicles:
The fraudulent trading of high-end vehicles has emerged as a prevalent avenue for VAT fraud and customs duty evasion. EPPO has recently uncovered at least three other criminal cases involving luxury car trading within this year alone.
In one case from January, EPPO investigated the smuggling of luxury vehicles with inaccurately declared values to evade customs duties. These vehicles, valued at approximately €14.8 million, were imported into the EU from non-EU jurisdictions, resulting in customs duty losses of around €3.5 million.
A significant collaborative effort was witnessed in June, when law enforcement agencies across multiple European countries united for Operation Huracán.
Over 2000 officers from Belgium, Germany, Hungary, Italy, the Netherlands, Portugal, and Spain conducted coordinated actions to address a VAT fraud scheme centered around the trading of luxury vehicles.
The operation led to numerous arrests, asset seizures, and more than 450 searches. The scheme’s impact was assessed at a staggering €38 million or more.
In July, EPPO’s Paris office joined forces with Bulgaria’s National Investigative Service and General Directorate for Combating Organised Crime to investigate the illegal trade of high-end vehicles.
This ongoing activity, stretching back to 2018, was suspected of laundering criminal proceeds and evading VAT. The investigation resulted in the seizure of foreign currencies, gold, and €73,000 in cash. Authorities estimated the damage caused to the EU to be at least €11 million.
Key Takeaways and Recommendations:
For enterprises aiming to combat tax fraud, including VAT fraud, the European Commission’s study titled “Possible Solutions for Missing Trader Intra-Community Fraud” offers valuable insights.
The study outlines several red flags to watch for, such as companies consistently selling at a loss, sudden trading activity from previously inactive firms, and unusual payment timing.
By understanding the risks associated with VAT fraud and implementing the recommended solutions, businesses can safeguard themselves from falling victim to such complex schemes.
A sophisticated value-added tax (VAT) fraud operation that has caused approximately €80 million in damages