Circular Frauds and Abuses of VAT

Abstract

Organized tax frauds include circular frauds which are very complex in EU member states. Circular fraud is a way of the organized and systematic extraction of money from the state budget by exploiting the shortcomings of the tax system. The destination principle is based on the same tax treatment and the same market position of domestic and imported goods, but it also enables circular fraud. New member countries of the EU are struggling with circular fraud. Losses in the territory of the EU are measured in billions of euros and thus the negative effects on the budgets of those countries are growing. Tax frauds also involve countries outside Europe (UAE, Hong Kong, Russia). On the other hand, in tax havens, illegally acquired money is transferred as a part of the money laundering process. Monitoring and suppression are becoming more and more demanding because the center of gravity has moved to the domain of intangible assets due to the evolution of the internet. The regulatory bodies of the EU are trying hard to combat circular fraud and VAT abuse.