fraud in the supply chain...pwc july 2006 loss of the right to claim input tax –kittel fraud in...
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Fraud in the supply chain
www.pwc.co.uk
April 2017
PwC
July 2006Loss of the right to claim input tax – Kittel
April 2017Fraud in the supply chain
Slide 1
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
PwC
PwC
Western EuropeThe fraudsters are ever changing
April 2017Fraud in the supply chain
Slide 2
The evolution of the vehicle of fraud
1 2 3 4 5 6
Extended verification –investigations
Mobile phones
White goods, high end
electronics e.g. Playstations
Precious metals e.g.
platinum and silver
Carbon credits
(service)
Pharmaceuti-cals, Voice
over IP
Wholesale supply of gas
and electricity, urine
testing kits
Extended verification –investigations
Bond House Kittel, extended
verification –Repayments
Reverse charge
More collaborative
approach
PwC
UKMore than VAT
April 2017Fraud in the supply chain
Slide 3
Current indirect tax frauds
1 2 3 4 5 6
Smuggling
diversion
contraband
Alcohol duties
Tobaccoduties
Landfill tax Second hand cars
Construction labour
Online marketplaces
Smuggling
diversion
contraband
Mis-classification
Missing trader
Missing trader
Overseas sellers
PwC
CEE Impact of VAT fraud
April 2017Fraud in the supply chain
Slide 4
Czech Republic Hungary Poland Romania Slovakia
bln. EUR 3.37/year
bln. EUR 2.93/year
bln. EUR 2.51/year
bln. EUR 8.29/year
bln. EUR 10.13/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 VAT Gap
reached 3.4% of the GDP in
Slovakia – Approx. bln.EUR 2.51
The VAT fraud in Romania reached
5.69% of GDP – Approx.
bln. EUR 8.29
The losses connected with VAT Gap were estimated at bln. EUR 10.13,
amounting
2.57% of GDP
Source: Study to quantify and analyse the VAT Gap in the EU Member States 2015 Report – European Commission, TAXUD.
PwC
CEE VAT fraud patterns and migration
April 2017Fraud in the supply chain
Slide 5
Industries affected by VAT fraud
Carrouselfraud
Missing trader
Mobile phones
IT components
Cars
VAT fraud patterns early applied in UK, Germany and Belgium were replicated in CEE countries
Romania
Food products, cereals, sugar products; fraud in energy and construction industries, supply of utilities
Hungary
Textile products, metal waste, computer parts, agricultural products in general, milk, cooking oil, sugar
Slovakia
Agriculture, construction, wholesale and retail trade and public catering industries
Czech Republic
Raw gold, non-ferrous metal, metal scrap, computer parts, mobile phones, textile, glass products
Poland
IT equipment, IT services, gold, steel, cars,soft-drinks, textiles, scrap metal, fuels, cosmetics, shipping, construction services
PwC
Links between Western Europe and CEEIt’s all over? Not yet!
April 2017Fraud in the supply chain
Slide 6
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
PwC
EuropeBusiness impact of indirect tax fraud
April 2017Fraud in the supply chain
Slide 7
1
3
5
2
2
6
Business intelligence procedures
Unfair competition
Hidden VAT costs
Seizure of wealth
Loss of reputation
Rising burden of tax compliance
Joint liability and risks for bona fide traders
PwC
UK – Implications of getting it wrong
April 2017Fraud in the supply chain
Slide 8
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
PwC
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?
What do you need to do?Manage the risks
April 2017Fraud in the supply chain
Slide 9PwC
PwC
The ChallengesWhat goes wrong
April 2017Fraud in the supply chain
Slide 10
Turning a blind eye to
deals that are too good to be
true
Spotting cloned suppliers/
VATnumbers
PwC
Fraudsters are one step
ahead
Failure to act on due
diligence Static due diligence –Snapshot
Data too big to spot the
issue in real time
Speed and volume of
transactions
Changes in the supply
chain
‘Box ticking’
Gap between tax and the
trading floor
PwC
The FutureDevelopments
April 2017Fraud in the supply chain
Slide 11
• 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
PwC
Future developments…..
April 2017Fraud in the supply chain
Slide 12
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