VAT carousels and other fraud in the trade between Germany and Sweden

The Problem In Sweden SEK 10 Billion, in Germany SEK 100 Billion is lost each fiscal year VAT fraud is a significant burden on the national budget fraudsters undercut their honest competitors thereby distorting competition distorted competition damage efficiency of European firms and then growth of Europe Lower growth places additional burdens on the national economies of the EU countries

Three types of fraud There are numerous types of VAT fraud relating to intra- EU trade. They can be structured according to the “degree” of fraud: First degree fraud: some VAT is paid, e.g. in case of fraud involving margin taxation of used cars. Second degree fraud: no VAT is paid in any country (fraud involving so-called phoenix companies without VAT refunds). No money is flowing into the treasury Third degree fraud: VAT refunds despite non-payment of VAT at an earlier stage (e.g. carousel trade) Here money is flowing out from treasury.

Goods especially vulnerable to VAT fraud gold, mobile telephones, data chips, foodstuffs, cars, clothing, commercial fertiliser. While it is suspected that significant fraud occurs in the service area, there is a lack of control options since quarterly returns are not required for services.

Premise and direction The premise of this audit is that trans-border VAT fraud requires trans-border collaboration between tax authorities and SAIs. The investigation is directed specifically at how German and Swedish tax authorities cooperate in combating VAT fraud relating to trade between the countries. We also highlight problems of internal interest to Sweden.

Deal with The German SAI (1) The collaborative work with the Federal German Audit Office (BRH) comprises for example: Reviewing if, when and how the tax authorities use data from VIES. Reviewing processing times compared to legally prescribed time limits. What are the reasons for delays and missing responses? Reviewing the authorities’ knowledge of the results of individual enquiries and the tax-related consequences of the exchange of information. Is the overall result of the exchange of information analysed? Does it lead to debits and additional tax? What are the reasons for any failures?

Deal with The German SAI (2) What are the reasons for the increase in German- Swedish exchange of information in recent years, which runs counter to the trend within EU? Are there concrete areas of operation – regional, industry-specific, structural etc. – where the German- Swedish exchange of information should be intensified and/or supplemented by national control and analysis? To what extent does the European Commission receive support from the Swedish and German authorities in its efforts to develop a strategy for a campaign against fraud.

Focus on tax searching Our review focuses on the Swedish tax offices responsible for tax searching the coordinating organs within tax districts and the National Tax Board as the organ responsible for the CLO system support, and other central functions in the context of tax searching.

CASES AND ANALYSIS The review is based on 10 type cases of mutual assistance in the trade between Germany and Sweden

The ten type cases (1) 1. Complete tracing of the supply chain in trade with cars 2. Is profit taxation applied in both countries on import of used cars? 3. Responding to enquiries from other EU states when the Swedish company has gone bankrupt 4. Responding to enquiries from other EU states when the Swedish company has been dissolved 5.Responding to enquiries about Swedish companies that submit VAT returns annually.

The ten type cases (2) 6. How Swedish tax authorities handle assistance matters when the company contests a purchase despite the presence of an invoice 7. How the tax authorities handle assistance matters when quarterly returns are missing and the risk of collusion exists

The ten type cases (3) 8. Are there legal obstacles to respond to an enquiry when the company has recently been audited? 9. Highlighting incentives and reasons for exceeding response times 10.Do Swedish tax authorities on their own initiative investigate significant variances between VIES and corporate returns?

Processing registers for tax search One way to improve the VAT control system is to carry out risk analyses via register runs. It is possible, for instance, to select Swedish companies that meet various criteria and connect this to information fromVIES. The National Tax Board’s database systems and registers can be used for that.

Action plan for Sweden For Sweden we propose an action plan for more efficient tax searching, concerning the tax authority’s: control philosophy organisation and analysis registers exchange of information rules and regulations and that Government considers introducing regulations for external auditing of corporate quarterly returns.

Parallel audit - Joint report This is a parallel audit. Both SAI publish their own reports. Germany has a regional tax organisation with 16 tax organisations and a central organisation within the German Ministry of Finance The German report is not ready yet. The German and the Swedish SAI later intend to produce a joint report which will be a synthesis of the observations of both auditing agencies.