European Union(EU) carousel fraud

The carousel problem

The EU has suffered billions of euros in losses of VAT through a fraudulent system of claiming back tax in one country where it was not paid in another. This system has been mainly used on high value, small items (such as mobile phones and microchips) where the goods can be quickly circulated with low shipping cost.

Carousel fraud, or MTIC VAT fraud, occurs where a company obtains VAT registration to acquire goods such as computer chips or mobile phones VAT-free from other EU Member States. They then sell on the goods at VAT prices which include VAT and disappear before paying over the VAT paid by their customers to the relevant tax authorities. The same goods may then be sold again in the same way to another third party, with the fraudsters pocketing the VAT amount at each transaction.

Intecard is developing an extension of its digital goods security system to allow the EU a way to eliminate this fraudulent activity.

The expert's view

According to Richard Thompson Ainsworth of the Boston University School of Law "A certified Digital VAT / trusted third-party system would eliminate carousel fraud in all targeted business segments".*

Intecard's Segregated Payment Management system provides just such a trusted third party system, and if used in conjunction with the ez-EU VAT system could potentially help to eliminate a fraud worth nearly $10 billion to the tax authorities.

Intecard is approaching EU governments and related governmental and Commission bodies to investigate the possibility of implementing a standardised system a of digital EU VAT compliance system based on the Intecard model as a potential solution to this costly and complex fraud.

* See Carousel Fraud in the EU: A Digital VAT Solution by Richard Thompson Ainsworth