Introduction

In this episode we had the pleasure to speak with Marloes Lammers and Vanessa Huygen van Dyck-Jagersma from HuygenLammers Advocaten. We’re very thankful that they want to share their knowledge which they gained by handling an enormous amount of VAT fraud cases. We discussed the “knew and should have known” principle, we spoke about the so-called “hit day”, and they explained why engaging in a professional relationship is comparable to marrying someone.

Why did you decide to set up your own law firm and what type of cases do you primarily work on?

Vanessa: “We have been working together for quite some years. At some point, we realised that we had a similar vision on how to run a law firm. Therefore, we decided to partner up and open our own firm. We work on a wide variety of cases, such as VAT carousel fraud and hidden capital cases (where companies or individuals did not report the correct owned capital and have to adjust this either voluntarily or mandatory). Furthermore, we also work on more and more crypto related cases.”

Marloes: “I also do tax authority audits. These can be related to VAT fraud, but can also be related to CIT. In other words, international fraud schemes like the ones you can read about in the Panama papers. This often involves the place of registration/residency and can also result in criminal charges. All in all, sometimes there is an overlap between certain cases, but overall you can say that no case is exactly the same.”

Vanessa: “We specialise in procedural law. We take on cases concerning any type of tax and every type of investigation because we know how the tax authority works, we know the procedures and how to build up a case.”

As you just mentioned, part of the work is VAT. Regarding this topic Vanessa wrote an interesting piece about the “knew” and “should have known” principle. Could you explain to the reader what this is about and why this is complex for companies?

Marloes: “The main reason why this may result in difficult situations for companies is that no business actually knows what the authorities expect from them. Even when discussing it with a tax adviser, the answer will probably be: just track the business registration number and the VAT number, that should be sufficient. However, a different tax advisor would argue that, looking at the jurisprudence of VAT fraud, you should also verify if the address corresponds with the business activities for example. In short, there are many different checks, but there is no official checklist.

Another complicating factor is that you encounter VAT fraud in every type of good. Before, VAT fraud mainly occurred in computer chips, but nowadays fraudsters are active in almost every area of commerce. I’m not sure if the amount of fraud is increasing, but it is definitely more “visible”. An explanation for this might be that it is tackled in a more coordinated way.”

Vanessa: “What you see in the court case I discussed on LinkedIn, is that the Public Prosecutor bases itself on various sources to come up with a list of characteristics. However, these characteristics are often quite “randomly” chosen, as it is really hard to assess what is relevant and what is not. This also makes it difficult for the judge who stated that the characteristics have a very general character and cannot be seen as characteristics to divide legal activities in a supply chain from fraudulent activities. So no one really knows what you need to investigate and too often in cases involving a fraudulent supply chain, it is argued that the accused company did not do enough.”

Marloes: “Many organisations have spoken with the tax authority about this issue. One example is BOVAG (the Dutch business organisation for the automotive sector), which specifically asked for a checklist in order to provide more security to car-dealers. The response is always the same: tax authorities think that fraudsters will start following that checklist exactly, which will not result in an improved situation. Of course, we should not help fraudsters, but on the other hand we should help honest entrepreneurs. This is especially relevant if you take into account that about 90% of the companies involved in a VAT fraud case is about a “should have known” case. The question is: shouldn’t we do something to help them?.”

Vanessa: “I actually think it is not too complex. The tax authority should simply say: make sure to check the business registration number, the VIES number and maybe also check if the place of establishment is correct. Furthermore, you should always do further research in case you feel like something is not entirely right. It is hard to make a checklist for this, as it all depends on the nature of the doubt, but in any case, the basics should be provided. This would really help the good entrepreneurs that simply want to be compliant.”

Marloes: “Another situation that might be difficult for companies is when a third-party inspection takes place because of an information request from abroad. In such a situation, one tax authority receives information from the other tax authority about a customer of an entrepreneur. They then ask to visit the entrepreneur to get further information. The information contained in the request for information is not shared with the entrepreneur. This is difficult for two reasons. Firstly, because the information request states, for example, that the customer qualifies as a missing trader. If the entrepreneur knows this, he will immediately cease his activities with this customer.

However, he does not receive this information and therefore cannot act upon it. In this way, a wrong buyer (fraudster) can continue for months and sometimes even years. Secondly, an entrepreneur is not allowed to talk to his customer about the information request he has received. The Tax Authorities take the view that the entrepreneur is bound by tax secrecy. If he would do that, the company is told it would violate Article 67 of the AWR[1].” As a result, the entrepreneur cannot ask the purchaser why an information request is received and sufficiently investigate what is going on. And thus consider whether he wants to continue doing business with the customer. Furthermore we see cases where the VAT number of the potentially fraudulent client will remain active in VIES.

I think that we could win a lot, if the tax authority would be transparent about this as most companies would then probably say: I don’t want to do business with this client anymore. It would be more beneficial if the government and companies are working together, instead of working against each other.”

Could you tell a bit more about the so-called “klapdag” (or “hit day”: the day of an unannounced criminal investigation after a period of covert investigation)? What is the effect on businesses and why is professional help essential?

Marloes: “9 out of 10 of these investigations do not come out of thin air. Often you see a long lasting procedure against the tax authority preceding this event. Still, it is a very impactful event as the investigative team will be at your door at 7 a.m. to do a house search. Two weeks ago, I treated such a case myself. This can be very upsetting as researchers typically turn everything upside down, even the panty drawers. In other words, it is the most invasive research that an entrepreneur can experience. It will halt your business activities for at least one day, but you need to undergo it as you cannot do anything. During such a day, computers will be copied or simply be taken away. Servers will be copied or simply taken away and goods will be confiscated. So, you will not be completely free in your own business anymore.

This is something a business-owner does not have any experience with and therefore professional help is essential. Assistance during the day itself is also relevant, in order to make sure that computers and servers are not taken, but that they are only copied which could help to restart business quicker. Furthermore, you can start preparing your defense. In case all computers and servers are taken, you cannot do much preparation anymore.”

Vanessa: “Professional help is also essential because during such a “hit day” personnel of the Fiscal Information and Investigation Service (FIOD in Dutch) are also present and often want to “have a chat”. In other instances people will be interrogated in a more formal setting. In any case, it’s good to have a professional next to you who can help with giving a correct statement. Sometimes it involves events from 5 years ago, and memories can become a bit foggy. This means you risk saying something wrong, that will end up in a formal statement and will stay there. It is very hard to adjust a statement thereafter.”

Marloes: “In one case, a client said, due to stress, that they drove a red car, while in reality it was a blue one. It is almost impossible to turn this red car into a blue one again which can jeopardise your court case.”

Vanessa: “Luckily, due to EU legislation, you now have the right to consult with your lawyer before going into a hearing, and the right that the lawyer is present during interrogation. With a lawyer next to you, you will not start talking about a red car. This is a rather innocent example, but you can imagine that this also happens with more sensitive details.”

What do you think is the main reason for the big VAT gap of €134 billion in the EU?

Marloes: “Systems that do not communicate with each other. In case a company reports a recapitulative statement in the Netherlands, but the foreign company does not report it in its national VAT return, it takes several months before such an error is detected. Then it takes another couple of months to start the actual investigation. Meanwhile, the VIES number remains live in the VIES database. There might be a signal internally, but this is not known by companies.

I would argue that tax authorities should give companies under investigation a certain status, such as ‘under investigation’. If you make sure that these national systems are able to communicate, companies can continue doing their business as usual, but then at least they are aware that something is going on. This can help them realise that they should be extra careful and put some extra effort in checking their client.”

What do you think about real-time reporting as a solution to VAT fraud?

Marloes: I think it is a good development. On the other hand, when I see that business-owners are only audited once in their lifetime, I wonder to what extent the tax authority will be capable of actually going after the newly generated signals. It might become similar to the current situation at the Financial Intelligence Unit (FIU)[2], which receives too many signals. The key is how many of those signals are actually investigated.

I think it would definitely help in case you already started an investigation. On the other hand I’m wondering if it can also serve as a starting point since it will be difficult to find enough resources to actually act on the signals. Especially as I see that regular audits can currently take between half a year and one year.”

Vanessa: “Furthermore, it would be good if a mismatch of the invoices occurs, the information will also be made available in VIES (as just discussed in the previous question). In this way you, as a trading partner of the potentially fraudulent supplier/buyer, can act adequately.”

If you could give one piece of advice to the European Commission, what would it be?

Marloes: “Maybe it’s better to abolish the exemption on intra-Community transactions. Look for example at the latest e-commerce legislation, where you need to report VAT in your own country after which tax authorities need to deal with the administration between each other. On the other hand, the discussions around the definitive system have been rather complicated. So I think the only solution is to communicate.”

Vanessa: “The chance of being caught really needs to be increased. If something is very lucrative and the chance of being caught is low, then people will keep on trying and fraud will not be stopped. If you tackle the problem by making it less lucrative (e.g. abolish the exemption) or by increasing the chance of being caught, that does really matter.”

What would you say to the reader to make them more enthusiastic about VAT?

Vanessa: “I would say that the most important thing is to be aware of which risks there are to VAT. If you should be enthusiastic about it… I don’t know [laughing].”

Marloes: To be honest no one gets excited about paying taxes [laughing]. Still, taxes need to be paid, and in order to be compliant you need to learn how to spot red flags when engaging in a professional relationship. When speaking with clients, I sometimes even compare it to a marriage. Just as with marrying someone, you first really need to get to know each other."

We would like to thank Marloes and Vanessa again for their time and for giving their perspective on VAT. The opinions expressed in this article are personal. If you have any questions, suggestions or if you want to be our next interviewee, do not hesitate to contact us via info@summitto.com

[1] Article 67 of the AWR concerns the obligation of confidentiality when executing the tax law. Primarily this means tax officers have a duty to keep tax matters of taxpayers confidential. The tax authorities also use this to put a obligation of secrecy on entrepreneurs who undergo a third-party inspection.

[2] “Pursuant to the Money Laundering and Terrorist Financing (Prevention) Act, FIU-the Netherlands is the designated organization where reporting entities must report unusual transactions. FIU-the Netherlands analyses this data to prevent and investigate crime.” https://www.fiu-nederland.nl/en