VAT (Value-Added Tax) fraud is a scheme through which businesses avoid paying VAT and even claim refunds for VAT they never pay. Such businesses actualize their criminal intents using different established methods. Thus, different types of VAT fraud can be identified, which governments of VAT-administering countries have spent huge amounts of money to investigate and checkmate.
Inflated Refund Claims
This is a VAT fraud scheme through which traders acquire invoices for purchases they never make. Their intent is to claim more refunds from tax-collecting authorities than they deserve. Such traders acquire fake invoices because invoices are needed to claim refunds. (Invoices give evidence of merchandise purchases which traders have made and on which they have paid refundable VAT.) There is an established crime network dealing in such fabricated invoices, which business people purchase to defraud government.
Traders conceal their actual amount of sales from domestic markets in order to evade their obligation to charge VAT on these sales. Such a fraud is designed to enable them to claim more refunds (credits) than they deserve. In addition, this scheme has the natural potential of boosting the business of such traders because it will encourage patronage on account of the relatively cheap goods and services the traders offer buyers.
Traders set up unreal enterprises and register them for VAT, thus creating fictitious traders of themselves. They make fake commodity purchases and sales, and defraud the authorities by the registration of their non-existent business transactions. Their aim is to have grounds for VAT-refund claims. In addition to setting up fake enterprises, they make fake export invoices. To avoid being exposed, they try to make fast profits and to disappear quickly.
Domestic Sales Disguised As Exports
Under this scheme, traders sell goods and services on a domestic market but claim to have sold them on an export market. For this purpose, they acquire fake export invoices. Fake export invoices contain claims about the amount of purchases greater than the actual amount such traders made. Such fabricated invoices apparently justify their claims to greater VAT payments and therefore to greater VAT refunds.
Missing Trader Intra-EU Fraud
This fraud allows traders to evade their VAT obligations in two different EU countries by capitalizing on goods or services that are in high demand in a particular EU country. For instance, after registering for VAT in one EU country, say, France, they can purchase goods and services that are in high demand in Ireland on which they cleverly avoid paying VAT. They then return to France to quickly sell such goods or services at VAT-inclusive prices (having registered for VAT there). Thereafter, they quickly disappear without paying their VAT.