VAT scheme haunts Bulgaria, strips budget of EUR 200 mln

Bulgarian fraudsters are no exception when it comes to abusing EU VAT rules on cross-border transactions within the EU and have created their own variant of the missing trader fraud, which is currently stripping the Bulgarian Treasury of at least an estimated EUR 200 mln every year, Bulgarian police and customs office sources told CEE Insight.

“The police say every year it prevents export fraud worth BGN 400 mln [EUR 200 mln] in tax returns, a police source told CEE Insight. “It is an open question how many fictitious export schemes remain unrevealed.”

Typically, the fraudsters purchase vegetables or grain crops from a local farmer. The targeted farmer is typically a low earner and does not own a company registered as a VAT payer. This is convenient for the fraudster, as he can contract another criminal to counterfeit an invoice for the purchase of vegetables, allowing the fraudulent trader to pump up the price of the fake purchase deal. The invoice is issued in the name of a non-existent company.

Next, the fraudster gets in touch with a foreign business partner, who usually happens to be a Greek or Romanian citizen. They seal the deal and the fraudster sends a truck from Bulgaria to Greece. But the truck is empty – the vegetables and the grains are stored in Bulgaria and then sold at a local marketplace. Meanwhile, the truck arrives in Greece and ‘sells’ the load in a fake deal to the Greek partner, who has previously prepared a proper invoice.

“There are no customs officials at the border to check the load of the truck, unless in the case of a tip-off,” a source told CEE Insight. “In other words, the scheme is directly linked with Bulgaria’s accession to the European Union in 2007, thanks to which the control over exports/imports between member states became lax at best.”

The trader then reclaims the VAT he had paid when purchasing the goods from a local farmer, according to the amounts stipulated in the counterfeited invoice. Due to the VAT rules on cross-border transactions between EU countries, the Greek business partner has no obligation to deduct the VAT from the acquired goods. The Greek accomplice pockets part of the recovered VAT.

Petar Chobanov, Bulgaria’s finance minister, recently announced that the government plans to fight VAT scammers to minimize losses from VAT tax returns. Under the proposal, special units will be deployed along the border, putting seals on trucks with loads, which are considered risky and often involved in fictitious export deals. The seal will be removed following a check by an authorized official.

“We intend to create a new directorate in the National Revenue Agency to deal with this particular problem concerning supplies between EU member states and opportunities to better monitor this fictitious VAT scheme,” Minister Chobanov told Darik radio July 20. “Our plan is to impose better control upon the entry of vehicle, put an extra seal. The vehicle will be guided to a warehouse to be checked if it transports goods typically used for VAT siphoning so that we can prevent empty trucks charging VAT.”

“The plan will hardly be implemented – it is too general and also tensions against the government are escalating so it will not live to see the end of its full term,” a source told CEE Insight.