VAT Carousel fraud

It is considered VAT carousel fraud when goods/services are traded across borders and one of the importing parties does not declare and/or settle VAT. Unfortunately, it is a plan of fraud that is becoming more and more widespread in relation to financial crime.

Film: Avoid getting on the VAT carousel (1:32 min)

Film: Advice on how to avoid VAT carousel (1:02 min)

Infographics: How VAT vanishes in carousel fraud

Infographics: Advice on how to avoid VAT carousel fraud

A buys a quantity of goods from C in another EU country. It is often small goods of high value, mobile phones for example.

A sells the goods at a lower price to B here in Denmark. As the goods were bought in another EU country, A does not have to pay VAT at the time of purchase - as we follow the VAT receivable procedure - and A totally ‘forgets’ the VAT payable in connection with the sale.

A closes down the business, which is often represented by a front man - and when the Danish Tax Agency (Skattestyrelsen) enters the scene, A has no money to be collected.

As it is, B is entitled to deduct VAT on the purchase - unless the Tax Agency is able to prove that B is involved in the fraud.

The result is that the public purse loses VAT income. The goods on which the VAT carousel fraud was based are often heading for yet another ride (or rides) on the carousel, crossing borders on their way. It is not uncommon that a phone rides the carousel three to four times - possibly never even meeting its end user.

It may be difficult to discover if VAT carousel fraud is under way, but if you have any questions or if you suspect possible VAT carousel fraud, please contact the Danish Tax Agency (Skattestyrelsen). The Tax Agency is unable to rubber-stamp a transaction, but if you have the slightest doubt about the supplier or the goods you are about to buy, do not complete the transaction.

The following indicators can help you spot VAT carousel fraud.

What to be aware of

when you buy something: 

• Is the supplier new?
• Is it a newly established business?
• Does this supplier stand out from your usual suppliers? (The due diligence test)
• The supplier is unknown in your line of business.
• The supplier is not registered for VAT in Denmark or abroad.
• The address of the supplier is unusual (maybe the supplier’s address is an office hotel or in a block of apartments).
• The supplier has no website describing himself/herself.
• Your business should keep name, phone number, fax number, email addresses and possible physical address of the supplier’s points of contact.
• The supplier offers goods at prices deviating significantly  from the market price.
• The supplier offers goods that your business has previously been carrying.
• The terms of complaint are peculiar or do not exist.
• The supplier’s terms of delivery are unusual for the line of business.
• The goods are delivered by someone else than the supplier, another business or a freight agent for example.
• The supplier’s terms of payment are unusual, cash payment for example.
• The supplier states that payment must be made to another business than the supplier.
• The bank account provided by the supplier is registered in another country than where the supplier is domiciled.
• The supplier’s written communication appears unprofessional, stationary and logos for example.

when you sell something:

• Is the customer new?
• Is it a newly established business?
• Does the customer stand out compared with your normal customer profiles? (The know-your- customer test).
• Is the customer able to buy large quantities of goods?
• Is it realistic and financially possible for the customer to buy such quantities of goods? You can check the customer via a credit rating agency.
• The customer is unknown in the line of business.
• The customer is not registered for VAT in Denmark or abroad.
• The address of the customer is unusual, for example an office hotel or in a block of apartments.
• The customer has no website describing himself/herself.
• The business should keep name, phone number, fax number email address and possibly physical address of the customer’s point of contact.
• The customer wants the goods delivered to another country than where the customer is domiciled or has his storage facility.
• The goods are paid for by somebody other than the customer or from another country than where the customer is domiciled.
• The customer has unusual payment or delivery terms
• The customer insists that a particular freight company handles the goods and the particular freight company is not generally known or used in the line of business.
• The customer’s written communication appears unprofessional, stationary and logos for example.

Advice on how to avoid VAT carousel fraud

It may have consequences for you and your business if you become involved in VAT carousel fraud, even if it was unintentional on your part.

You may be affected financially

If your purchases can be traced to VAT fraud, VAT carousel fraud for example, you may be denied VAT deduction on your purchases, and your goods or services will therefore be more expensive and harder to sell.

You may think that you are in good faith when you make your purchases, but if we assess that you knew or should have known that VAT fraud was going on at some point in time before you made your purchase, your deduction of VAT may be at risk.

You may work up a bad reputation in your line of business

A bad reputation may make your customers go somewhere else and make good suppliers doubt your business.

Therefore, pay attention to our ‘How do I avoid VAT carousel fraud’.

Cooperation between tax administrations and businesses

Guide on enhanced cooperation between Member States and Business in the field of fighting VAT fraud.