New EU tool to combat carousel fraud
The EU launches a new tool to detect VAT fraud automatically
The European Commission started using the tool Transaction Network Analysis (TNA) to crack down VAT fraud on intra-Community transactions. The tool has been in placed for a few months and it is already being used to raise questions about discrepancies between ECSL returns and local VAT returns.
The cost of VAT fraud using the so called ´carousel fraud´ is one of the largest losses of revenue for countries in the EU. This fraud consists on the use of zero-rated intra-Community supplies and VAT deduction on local transactions. Multiple traders create a chain transaction to generate the right to deduct on domestic purchases follow by zero-rated intra-Community supplies. Typically, one trader in the chain does not know about the fraud. The rest of the traders will disappear once they have effectively received the VAT amounts ´incurred´.
The fraudster parties in the chain will normally avoid reporting their transactions in the ECSL returns, hence producing a mismatch between their ECSL and the VAT return of the party not participating in the fraud. The aim of the new TNA is to detect those mismatches as early as possible.
More information about the new tool can be found on the Press release of the European Commission about the TNA.