VAT fraud on EU cross-border trade: €14.2 million seized in Hungary

August 18, 2021

In June 2021, the NTCA (the National Tax and Customs Administration) in Hungary, in cooperation with Europol, stopped a crime group involved in cross-border VAT fraud (including carousel fraud). It seized assets of a total value of €14.2 million, including cash, real estate, and money in bank accounts. 14 arrests and 59 house searches were performed. 

VAT fraud on cross-border trade in the EU

Missing trader fraud, or missing trader intra-community fraud (MTIC fraud) is common in the EU, and exploits intra-community VAT rules to defraud governments of VAT that is due. In this criminal scheme, companies who import high-value goods (mobile phones, game consoles, computers, cars) from other EU countries benefit from the VAT exemption of intra-community trade, while charging VAT on reselling the goods domestically. Once they need to remit VAT to the tax office, they disappear. 

The operation of the criminal group

In October 2019, the Hungarian authorities broke up a similar criminal group involved in VAT fraud; at the time, the fraud it was involved in had resulted in a loss of €12 million for the Hungarian state. The investigations pointed towards three other related criminal networks, all of them involved in VAT carousel and acquisition fraud. Companies (registered to straw men) were purchasing and reselling mobile phones, and filed VAT returns but didn’t remit the VAT due. 

After purchasing mobile phones, those companies were reselling them to other companies at a loss; the goods were then resold again, to a new set of companies, who then traded them at online marketplaces, or resold them again in a different EU state to end customers. Companies were charging VAT due but were never paying it to the tax office; they had no other economic activity, and had no employees. Besides that, they existed only for short periods of time, and were registered to foreign individuals. The Hungarian government estimates the activity of those networks to have caused losses of nearly €30 million in missing VAT revenue. 

The Hungarian crime networks were dismantled in cooperation between the Hungarian authorities and Europol

The Hungarian authorities worked together with Europol, the EU law enforcement cooperation agency (headquartered in The Hague, The Netherlands) to investigate and analyze the activities of the crime rings. Europol brought in three experts to assist the Hungarian authorities with data extraction and real-time data analysis. 

VAT fraud schemes, such as this one, result in losses not only for local governments, but also for the EU as a whole. Ultimately, such schemes defraud EU taxpayers of public funding money, and result in significant VAT gaps each year. 

In the past few years, the EU has expressed its firm commitment to preventing and cracking down on VAT fraud and progressively closing the VAT gap, which requires cooperation between all member states, local law enforcement, and Europol. For this reason, the European Financial and Economic Crime Centre (EFECC) was founded, to support member states in their efforts to combat such organized crime activities. 

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