Fraud in the supply chain

Size: px

Start display at page:

Download "Fraud in the supply chain"

Aldous O’Brien’
5 years ago
Views:

1 Fraud in the supply chain

July 2006 Loss of the right to claim input tax Kittel In Axel Kittel v Belgium (Joined cases C-439/04) and C-440/04), the CJEU held that where the recipient: knew or

2 July 2006 Loss of the right to claim input tax Kittel In Axel Kittel v Belgium (Joined cases C-439/04) and C-440/04), the CJEU held that where the recipient: knew or should have known that his purchase involved him participating in a transaction vitiated by fraud, the tax authorities may refuse this entitlement to deduct input VAT Slide 1

3 Western Europe The fraudsters are ever changing The evolution of the vehicle of fraud Mobile phones White goods, high end electronics e.g. Playstations Precious metals e.g. platinum and silver Carbon credits (service) Pharmaceuticals, Voice over IP Wholesale supply of gas and electricity, urine testing kits Extended verification investigations Extended verification investigations Bond House Kittel, extended verification Repayments Reverse charge More collaborative approach Slide 2

4 UK More than VAT Current indirect tax frauds Alcohol duties Tobacco duties Landfill tax Second hand cars Construction labour Online marketplaces Smuggling diversion contraband Smuggling diversion contraband Misclassification Missing trader Missing trader Overseas sellers Slide 3

5 CEE Impact of VAT fraud Czech Republic Hungary Poland Romania Slovakia bln. EUR 3.37/year bln. EUR 2.93/year bln. EUR 10.13/year bln. EUR 8.29/year bln. EUR 2.51/year Amount of prejudice to the state budget bln. EUR 3.37 annually, reaching 2.16% of GDP VAT fraud is estimated at bln. EUR 2.93 per year, representing 2.90% of GDP The losses connected with VAT Gap were estimated at bln. EUR 10.13, amounting 2.57% of GDP The VAT fraud in Romania reached 5.69% of GDP Approx. bln. EUR 8.29 The VAT Gap reached 3.4% of the GDP in Slovakia Approx. bln.eur 2.51 Source: Study to quantify and analyse the VAT Gap in the EU Member States 2015 Report European Commission, TAXUD. Slide 4

6 CEE VAT fraud patterns and migration IT components Missing trader Cars Industries affected by VAT fraud Poland IT equipment, IT services, gold, steel, cars, soft-drinks, textiles, scrap metal, fuels, cosmetics, shipping, construction services Czech Republic Raw gold, non-ferrous metal, metal scrap, computer parts, mobile phones, textile, glass products VAT fraud patterns early applied in UK, Germany and Belgium were replicated in CEE countries Mobile phones Carrousel fraud Slovakia Agriculture, construction, wholesale and retail trade and public catering industries Hungary Textile products, metal waste, computer parts, agricultural products in general, milk, cooking oil, sugar Romania Food products, cereals, sugar products; fraud in energy and construction industries, supply of utilities Slide 5

7 Links between Western Europe and CEE It s all over? Not yet! UK retailer purchasing goods on the grey market Polish tax authorities contacted HMRC who asked the retailer to account for what they had done HMRC s view was that they could assess for the missing Polish VAT Slide 6

8 Europe Business impact of indirect tax fraud Rising burden of tax compliance Joint liability and risks for bona fide traders 5 6 Business intelligence procedures Loss of reputation Unfair competition Seizure of wealth Hidden VAT costs Slide 7

9 UK Implications of getting it wrong Input VAT deduction withheld or tax assessment raised New penalties for participating in VAT fraud Failure to prevent the criminal facilitation of tax evasion Joint and several liability for online marketplaces Slide 8

What do you need to do? Manage the risks Supplier due diligence is about more than credit checks and more than just filing it How do you monitor spikes in trade? How do you identify critical changes?

10 What do you need to do? Manage the risks Supplier due diligence is about more than credit checks and more than just filing it How do you monitor spikes in trade? How do you identify critical changes? Is it too good to be true? What renewal checks do you do? How do you pick up new supply chains? How do you pick up changes in supply chains? How do you educate: Trading floor? Procurement teams? Purchasing teams? Slide 9

11 The Challenges What goes wrong Turning a blind eye to deals that are too good to be true Gap between tax and the trading floor Box ticking Spotting cloned suppliers/ VAT numbers Changes in the supply chain Fraudsters are one step ahead Speed and volume of transactions Failure to act on due diligence Static due diligence Snapshot Data too big to spot the issue in real time Slide 10

12 The Future Developments Increased regulation More onerous responsibilities Split payments? More reverse charge Increased collaboration between tax authorities Tax authority access to transactional data (SAFT) Tax authority real time access to data and point of sale recording Use of big data analytics Slide 11

13 Future developments.. Slide 12

14 This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it PricewaterhouseCoopers LLP. All rights reserved. In this document, refers to the UK member firm, and may sometimes refer to the network. Each member firm is a separate legal entity. Please see for further details NB-OS

Indirect tax forum VAT establishments April 2018

www.pwc.co.uk Indirect tax forum VAT establishments Agenda VAT establishments basic principles Hastings Insurance Services Ltd - implications 1 2 Topical issues Questions 2 3 4 4 2 What are the basic principles?