VAT FRAUD – HOW CAN YOU PROTECT YOUR BUSINESS? With the ever-changing pace in business and emerging markets, VAT Fraud is becoming more prevalent. The European Court of Justice in a number of cases concerning VAT fraud has held that:
a taxable person who knew or ought to have known that, by his purchase of goods, he was party to a fraudulent transaction can have his right to deduct related input credits refused;
a taxable person who knew or ought to have known that the transaction carried out was part of a tax fraud committed by the purchaser may be denied the right to zero-rate the intra-Community supply to that purchaser.
To that end a taxpayer who unwittingly becomes involved in a transaction which is subsequently proved to be connected with a VAT fraud, could end up with an exposure to VAT, interest and penalties.
It is good business practice to undertake due diligence when entering into a business transaction, particularly with an unknown party. In order to help you avoid being an unwitting party to a VAT fraud, we have set out examples of reasonable steps you can take to establish the integrity of your customers, suppliers and supplies:
Obtain copies of the Certificate of Incorporation, if applicable, and VAT registration certificates;
Verify VAT registration details on the European Union website if the other party is based in another Member State http://ec.europa.eu/taxation_customs/vies/;
Obtain signed letters of introduction on headed paper;
Obtain some form of written and trade references and follow through on these to ensure they are genuine;
Obtain credit checks and other background checks from an independent 3rd party;
Make personal contact with a senior officer of the prospective supplier and/or make a visit to their premises whenever possible;
Obtain the prospective supplier’s bank details in order to check whether (a) payments made by you would be made to a 3rd party or (b) in the case of an import, the supplier and the bank share the same country of residence.
This is not an exhaustive list and Revenue recommends that these are supplemented where necessary in each of the above categories to ensure that you are not caught up in fraudulent transactions.