Value Added Tax and Carousel Fraud Schemes in the European Union and the Slovak Republic

Abstract

The aim of this contribution is to elaborate on the institute of VAT frauds, with emphasis on Carousel frauds. This document provides compact information concerning VAT fraud schemes within the European Union, problems within the EU VAT system, which was put into force in 1993 and strategises how to tackle VAT frauds as well as de lege ferenda proposals, especially in a view of the European Commission’s proposed solution on the EU’s common system of VAT. This article focuses on details of functioning of the EU VAT system, it explains relevant sections of the Slovak Penal Code Act pointing out legal issues in practise including examples of criminal conducts falling within the definitions of relevant sections of the Slovak Penal Code Act. This article demonstrates patterns of how carousel frauds are committed, how they evolved as a consequence of globalisation, economic changes, elimination of internal borders and electronic services. Authors chose the very actual topic of carousel frauds in order to reveal the commission of VAT evasions, focus on existing problems and to emphasise the need for improvement of the European Union legislation in the field of VAT frauds. The contribution aims at proposing the solution for minimising the VAT gap. The article utilises a descriptive approach to explain into detail functioning of the carousel frauds due to the fact that patterns used are complicated using a lot of companies to coved fraudulent transactions. Many times legal businesses are used to confuse law enforcement agencies as well as tax authorities of Member States when investigating commitment of VAT frauds e.g. Missing trader intra-Community fraud. In practise even courts have problems to determine which criminal offence of the Slovak Penal Code Act was committed. The article also provides in its Annex I the citations of the Slovak Penal Code Act which is beneficial to experts from Member States of the European Union to compare their jurisdiction to laws applicable in the Slovak Republic to bring the legislations closer or to subject the Slovak legislation to criticism.