StartCriminal tax lawMissing trader intra-community (MTIC) fraud / VAT fraud

Missing Trader Intra-Community (MTIC) Fraud and Sales Tax Fraud

There has been a recent increase in cases, in which the deduction of input tax or the exemption of intra-community deliveries from tax are refused during sales tax special audits or following a search of premises by the tax inspector.

There has been a recent increase in cases, in which the deduction of input tax or the exemption of intra-community deliveries from tax are refused during sales tax special audits or following a search of premises by the tax inspector. The refusal of input tax deduction is justified by the assertion, that the taxpayer is - possibly without his knowledge- part of a so-called sales tax fraud or a so-called back-to-back business and should have been aware of this. In respect of refusing the exemption from taxation for intra-community deliveries, the Tax Authority asserts, that the taxpayer has failed to produce the required evidence in the form of receipts or accounts. When it comes to the refusal of input tax deductions, it is argued that the person issuing the invoice is not the person rendering the performance, the supplier is not a business, a bogus transaction has occurred or the recipient did not gain possession of the transacted goods.

The magic word “sales tax fraud” opens the gateways to obtain a search warrant from a judge.

The ramifications for the affected taxpayer are grave. The resulting liquidity bottlenecks often result in existential threats for the entire company. Entire industries, such as the trade with mobile phones, CPU’s, high-value metals, scrap, cars, catalytic converters etc are now under a blanket suspicion. The magic word “sales tax fraud” opens the gateways to obtain a search warrant from a judge. The cases usually unfold as follows:

For camouflaging the system, reputable companies or large corporations with exclusively physical goods are often interspersed in the chain of companies used in the fraud. These affected companies are domestic businesses and usually comply with their duties to declare taxes. They do however conduct a significant amount of business with companies, both domestic and foreign, which are categorised as “missing trader” or dummy by the Tax Authority, based on their information. As a consequence, the Tax Authority refuses the deduction of input tax or the exemption from tax for intra-community deliveries by the affected company. This leads to amended sales tax assessments, in which the deduction of input tax or the exemption of the delivery from tax is denied. To secure the entitlement to collect taxes, freezing injunctions are frequently issued. If it is obvious to the Tax Authority, that the tax cannot be collected from the company, claim notices are issued - sometimes simultaneously - to the directors or other persons involved, the effect of which is also secured by seizures orders. Criminal proceedings for tax fraud are commenced and searches of premises are conducted with the justification, that the domestic business owner has committed tax fraud and willingly claimed unlawful input tax deductions or tax exemption. Depending on the volume of the tax fraud, freezing injunctions are issued and - in some cases - even pre-trial detention is ordered.

Avoiding sales tax frauds by obtaining competent legal and tax advice.

Our attorneys, tax advisers and tax law specialists are happy to develop a catalogue of actions aimed at preventing you becoming an unwitting participant in a sales tax racket. If you are however - wittingly or unwittingly - part of such a fraud, we also assist you in the negotiations with the tax inspection and public prosecutor.

LHP: Attorneys at Law, Tax Law Specialists, Tax Advisers PartmbB

Cologne

Theodor-Heuss-Ring 14, 50668 Cologne,
Telephone: +49 221 39 09 770

Zurich

Stockerstrasse 34, 8002 Zurich,
Telephone: +41 44 212 3535