At least two German Länder (federal states) are investigating complexe cross-border VAT fraud carousels in the electricity and gas trade, the German edition of the Wall Street Journal reported.
One case of fraud in the electricity trade, causing EUR 2.8 million in losses of tax revenue, was uncovered last year in the state of Baden-Württemberg, Wall Street Journal said. The state was also investigating another possible fraud in the gas trade. Besides, the state of Saxony was looking into a number of cases mainly in the electricity trade with potential losses worth several millions. Although not all federal states responded to Wall Street Journal inquiries into the matter, it was apparent that tax fraud in the electricity and gas trade was a widespread problem, Wall Street Journal said.
Uncovering fraud schemes was difficult as it usually necessitated inter-state cooperation and extensive investigations abroad, Wall Street Journal said, refering to a spokeswoman of the Saxon tax authorities.
The fraud scheme was organised as a carousel, Wall Street Journal said, in which a number of companies were involved that sold each other contracts, usually with a little premium. The companies added VAT and the buyers claimed input VAT (Vorsteuer) with the competent tax and revenue office. One company did not pay VAT and subsequently disappeared from the market as it was a bogus company set up only for the purpose. Fraud only seems to occur in OTC trading, which is not as highly supervised as trading on the exchanges, Wall Street Journal said, pointing out that the bulk of trading was conducted on the OTC market.
In 2008/2009 multi-million damage was caused by VAT fraud relating to the sale of CO2 emission allowances (please see related posts below). In 2010 the European Commission introduced a so-called reverse charge procedure in order to contain VAT fraud in CO2 emission allowance trading. It allows member states to shift, on an optional and temporary basis (until 30 June 2015), the liability for the payment of VAT from the supplier to the customer. On 31 July 2012 the European Commission adopted a proposal for a Quick Reaction Mechanism (QRM). It provides that Member States would be able to apply, within the space of a month, a “reverse charge mechanism”, which makes the recipient rather than the supplier of the goods or services liable for VAT.
Source: Wall Street Journal Deutschland