VAT scams worth billions plague Poland
Poland is being plagued by mobile phone, structural steel, and precious metals related VAT scams, which are reportedly costing the state billions of zlotys, the Polish media reported throughout May and June.
“As far as precious metals are concerned, the difference between the declarations of Polish and foreign customers reached EUR 300 mln in 2012,” Poland’s Economic Chamber of Non-Ferrous Metals and Recycling board member, Marek Suchowolec, commented.
Most of the aforementioned sum concerns gold and platinum.
Meanwhile, mobile phone producers from the EU declared that goods worth EUR 1.3 bn were sent to Poland in 2012, while during the same period Polish customers declared hardware worth only EUR 980 mln.
How does this happen?
The most common method of defrauding public funds remains the so-called ‘carousel fraud,’ or the ‘missing trader fraud.’ It offers relatively high profits in a short period of time, with relatively low risk of being busted.
With VAT carousels criminals exploit the fact that the movement of goods and services between jurisdictions is tax free. This allows them to charge VAT, and then simply abscond taking it with them.
A standard scam scenario includes a network of companies registered in various EU member states. Company A registered in the Czech Republic issues an invoice for a batch of mobile phones worth, say EUR 1 mln. The invoice is issued to company B registered in Poland tax-free, because the trade is executed within the boundaries of EU. Company B sells the mobile phones worth EUR 1 mln to company C, also registered in Poland. Company C pays company B EUR 1 mln for the goods plus VAT (mobile phones are subject to 22 percent VAT) – EUR 1,220,000. Company B does not report the EUR 220,000 VAT to the fiscal office, folds and absconds.
Company B will sometimes not abscond immediately. It will pass the fake goods on to company C, from company C to company D, and so on. Until one of the companies in the network ‘sells’ the same goods to company A registered in the Czech Republic.
With regard to the structural steel segment, known for being frequently used in VAT scams, law enforcement agencies did not react till 2010, when it was discovered that 50 percent of the market was being flooded with fake invoices.
As of May 2013, there were dozens of investigations concerning VAT scams in the structural steel segment, according to Polish daily Rzeczpospolita. A special investigation force composed of fiscal office agents, police officers, prosecutors and representatives of the steel industry was set up in February 2013 to help shift the case load. According to media reports, industry representatives were the first to alert the authorities of serious irregularities in the segment.
“There is no need to invest a lot because the rotation is frequently fictitious, and filtering the goods through hundreds of companies minimizes the bust risk,” an officer from the police investigation bureau told Polish daily Rzeczpospolita. “Even in the case of a bust, the defrauded sums are usually not recoverable.”
One of the most spectacular busts in recent times includes a group of 33 individuals, who spent PLN 200,000 on two pallets of PEEK Polyetheretherketon, used in construction and medical equipment, and defrauded some PLN 58 mln on the material over a period of two years (2011-2012).
In this particular scheme, the gang created a series of front companies set up mainly in Poland, Germany and the Czech Republic. The circulation of goods within the EU is VAT-free.
Other examples, although less spectacular, include a 30-year-old businessman from Bydgoszcz who acquired food grade oil, taxed at 5 percent, and taxed it at 23 percent – the tax grade for industrial oil. The losses were estimated at nearly PLN 3.5 mln.