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Dutch National Government : Weekers tackles VAT fraud with e-gadgets

07/05/2012| 09:47am US/Eastern
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News item | 05-07-2012

The State Secretary of Finance Frans Weekers has taken measures in order to halt cross-border VAT carousel fraud in the trade in electronic equipment. During the last few months, the Fiscal Intelligence and Investigation Service (FIOD) received warnings about an increase in carousel fraud resulting in considerable losses for the Dutch treasury. This concerns in particular the trade in mobile phones, game computers, computer parts and tablet PCs. The introduction of a VAT reverse charge mechanism for mobile phones and computer chips intends to put a stop to potential incidences of fraud amounting to tens of millions of Euros.

In a VAT carousel fraud, a defrauding seller charges VAT but does not pay it to the Tax and Customs Administration. This fraudulent party (the "missing trader") is often suddenly dissolved and the owners disappear into thin air. As a result the outstanding taxes are difficult to recover. Because the buyer can deduct the VAT charged as input tax, on balance the Tax Authorities suffer loss.

In order to avoid this kind of fraud, Mr Weekers wishes to introduce a VAT reverse charge mechanism for the trade in said products. A reverse charge mechanism shuts the door on carousel fraud. The VAT levy is shifted from the seller to the buyer.

If the seller shifts the VAT to the buyer, the seller only receives the (net) compensation charged for his activities without the VAT owed. The buyer includes this VAT in his tax return and can deduct it in that same tax return. Thus no VAT is paid to the seller, so that this VAT cannot be used for fraudulent purposes (received but not paid).

Because a reverse charge mechanism deviates from the European VAT system, the permission of the European Commission and the full Council is required. The Netherlands has filed a request for derogation to that end with the European Commission. Because handling such a request takes some time and VAT fraud is increasing considerably in particular in the trade in mobile phones and computer parts, Mr Weekers has decided to independently introduce a reverse charge mechanism for these products as from 1 June next.   

State Secretary Weekers:

"In this manner the bona fide trade can proceed without hindrance and fraud is prevented, so that there are no negative consequences for the treasury."

So as to more effectively tackle carousel fraud, various authorities are currently working together on a structural basis and in a more intensive way. This is the result of an initiative of Mr Weekers. The banking sector has meanwhile stated also to be prepared to explore with the Ministry of Finance and the Tax and Customs Administration how the mutual cooperation and exchange of data can be further optimised.  

The Tax and Customs Administration, the FIOD, the Public Prosecution Department, the Ministry of Security and Justice, the police, financial supervision institutions, the banking sector, tax consultants and the civil-law notaries are involved in this joint approach.
Earlier this year, as a result of warnings of fraud from abroad and at the request of APX Endex Mr Weekers decided to allow a measure in the form of the bonded warehouse scheme for the trade in electricity and gas between entrepreneurs.

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