Reconstructing a €9 million VAT fraud scheme

Recently, the Dutch Fiscal Information and Investigation Service (FIOD), together with the help of Eurojust, stopped an enormous VAT fraud scheme, kudos for the work done! The fraudsters defrauded the Dutch tax authority for €9 million between 2017 and 2020.[1] In this blog post we try to reconstruct the VAT fraud scheme. Important to note is that we’re basing our research on publicly available resources only. Therefore, it might be possible that we miss some links within the fraudulent value chain.

European Commission projects a 17% increase of the VAT gap in 2020

On September 10th the European Commission published its annual VAT gap report. The report shows that the European Union Member States lost a total of €140 billion in VAT in 2018. Even more worrisome is the forecast that those same Member States will lose a total of €164 billion in VAT over 2020 due to the COVID-19 pandemic. Luckily there is also positive news as Commissioner Gentiloni is planning to ‘step up the fight against VAT fraud’.

The EU tax gap

Governments all over the world have the same problem: there is a difference between the tax revenue collected and the tax revenue that should have been collected. This is called the tax gap. It is estimated that almost €1 trillion is lost on an annual basis within the European Union (EU) alone.[1] In this blogpost we’ll discuss the gaps of different types of taxes; import duties, personal income tax (PIT), corporate income tax (CIT), and value added tax (VAT).

VAT and economic crises

@Photo by Markus Winkler on Unsplash The entire world is currently doing its best to curb the corona crisis. During the last months, many governments announced economic rescue packages with a value of trillions of euros to tackle healthcare issues and related economic problems that the outbreak of the coronavirus is causing. These packages vary per country. However, all countries seem to agree on the fact that VAT adjustments can help.

History of the EU VAT system

Previously, we wrote about Value Added Tax (VAT) fraud. VAT is an excellent form of taxation as the responsibility to pay consumption taxes is distributed over the complete value chain, whilst only the end consumer actually pays taxes. This makes VAT a neutral form of taxation and to a certain extent both self-administering and self-policing. The rapid increase in the number of countries using a VAT system shows that the vast majority of countries agrees with the above.