John M Shanahan & Co.

linking practice to business

Chartered Accountants
Registered Auditors

Phone: 057 93 22100

email: info@shanahan.ie

VAT Fraud and its Implications

While Revenue are continually obsessed with policing VAT Fraud, its remains their responsibility and not that of the business owners, despite  their best efforts to shift the workload.

January 21, 2020

 

Revenue expects every VAT registered business to assess the integrity of its supply chain and customers, as well as the goods involved in these transactions.  They say the responsibility to carry out these checks remains with your business.

 

We at, John M Shanahan & Co, Chartered Accountants, Tullamore, Co Offaly have taken a moment to outline how this can occur and the actions you can take to prevent it happening.


What is VAT Fraud?
VAT fraud is a form of tax fraud. It is a deliberately calculated action. Examples of VAT fraud could involve companies not actually registering for paying VAT despite the fact that they are obliged to; consumers being charged VAT illegitimately by dishonest companies; or traders who make illegitimate claims concerning VAT repayment (this is also known as Missing Trader Intra-Community VAT fraud). It can also arise where one business charges another business VAT and fails to pay it over to Revenue.  It is relatively straightforward to perpetrate and has a cost to EU member states running into billions of euro.

Carry Out due Diligence.

When entering into business with an unknown party it is recommended that you carry out a reasonable level of due diligence to establish the integrity of your customers/ suppliers and supplies (and Revenue advocate as mentioned here-below).

Some basic checks that can be instigated are:

  • 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. Further information on the VIES system is available on the Revenue website;
  • Obtain signed letters of introduction on headed paper;
  • Obtain some form of 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 manager of the business and/or make a visit to their premises;
  • Obtain the prospective supplier’s bank details.

Verify their VAT number through Revenue.

 

Business responsilility.

Any business can get caught up unknowingly in VAT fraud, so how should they be treated?  A business can conduct a large number of transactions every day in good faith, only for it to emerge that one of these was in fact fraudulently conducted without the knowledge of the business. How should those innocent parties be dealt with?
According to EU VAT law if a business “should have known” that it was involved in VAT fraud then it can be held liable for the defrauded VAT and possibly penalties.   As VAT on goods in Ireland is generally at a rate of 23%,  the potential cost for a business can be very significant.  Therefore, a business must take steps to ensure that it is not an unwilling participant in transactions that could ultimately be connected with a VAT fraud.
Revenue have just issued detailed guidelines setting out what a business can do to avoid being penalised in this way where there is VAT fraud.  Revenue’s view is that, on an ongoing basis, a business should carry out the above due diligence.

These proposals would bring the level of policing by a business of its suppliers to a new level.  They would add to the administrative burden on businesses, would be quite time consuming and would add delays to the business of actually doing business.
Furthermore, the responsibility for policing VAT fraud rests with the Revenue who has the power to audit any business to ensure its compliance with VAT rules.  This responsibility must not be effectively transferred to businesses. In this regard the EU court has held that businesses are not obliged to carry out checks on the other party to a transaction.

We do recognize that businesses has a responsibility to take reasonable steps to avoid complicity in tax fraud, and to report it when they suspect it. But these latest guidelines would oblige businesses to develop a level of policing activity which frankly isn’t really part of their ongoing business.

You can read Revenue Guidance at this link:

https://www.revenue.ie/en/tax-professionals/tdm/value-added-tax/part09-obligations-accountable-persons/records/obligations-records-protect-your-business-from-vat-fraud.pdf

We at JOHN M. SHANAHAN & CO. are here to help you with all your business, financial, accounting, statutory and taxation requirements, by providing expert, specialist and professional service tailored to meet your needs.

Phone 057 93 22100 or email info@shanahan.ie or use our contact form here- Contact Form.

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