WARNING FOR VAT FRAUD
Recently, we have noticed incidences of VAT fraud involving Seagate’s products. This so called ‘carousel’ or ‘missing trader’ fraud disrupts trade, leads to unfair competition and triggers substantial tax losses. It may also lead to
liabilities for traders unwittingly involved.
At the heart of each carousel fraud is a fraudulent company (‘missing trader’) buying goods in other EU countries
(no VAT) and selling locally. The missing trader collects VAT on its local sales, but does not pay this VAT to the tax
authorities. After some time, the missing trader stops trading and disappears with its VAT spoils.
Carousel fraudsters want to generate high turnover within a short period of time. To achieve this, products may be
sold at a loss, as the real profit is the VAT defrauded. Trade flows are orchestrated between at least one ‘missing
trader’, companies wittingly involved in the fraud and unsuspecting third parties.
Upon discovery of such VAT fraud, tax authorities will investigate all parties in the trade chain. The authorities are
legally entitled to recover their VAT losses (and levy often substantial fines) from all traders who did not apply due
care in their trading. Applying due care means that a trader has taken all reasonable precautions in order to assure
that he is not dealing with VAT fraudsters, directly or indirectly.
Fraudsters prefer small volume / high value products such as mobile phones, precious metals and computer
components. VAT rules for some of these products have been changed, introducing a so called ‘reverse charge’,
so that fraud is no longer possible. Fraudsters now turn their attention to alternative products such as - apparently
- disc drives.
Traders in disc drives must be cautious not to get involved into fraudulent trading as this may lead to substantial
tax liabilities.
Seagate is working with the VAT authorities to report suspect transactions and recommend the partners to do the
same in case of the RED flags. These RED flags are as follows:
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Companies new on the market without a clear track record.
Companies with a virtual office.
Companies selling products for unusual low prices.
Companies buying products for unusual high prices.
Companies trading in unusual large quantities of products.
New companies managed by individuals with no prior knowledge of the product, who hire specialists from
within the sector.
Unsolicited approaches from organizations offering an easy profit on high-value/volume deals for no apparent
risk.
Repeat deals at the same or lower prices and small or consistent profit.
Instructions to make payments to third parties or offshore.
Products remaining at the same logistic center during all transactions.
Contacts have a poor knowledge of the market and products.
Traders repeatedly offering their trade through new companies.
Should any of these red flags occur, a trader must immediately inform the Seagate indirect tax department or its
local tax authorities (with a copy to Seagate).
Disregarding red flags will have serious repercussions when a fraud is discovered afterwards. Tax authorities may
raise substantial tax assessments which will be hard to challenge as the trader did not apply due care in its trading. Even criminal charges may follow. It is therefore crucial that dedicated distributors such as you do not turn a
blind eye to VAT fraud, but take appropriate action when there are indications of fraud.
It is in our common interest that VAT fraud is stopped at an early stage. For this, your input is crucial. Please do
not hesitate to contact us with any information or questions you may have. We are looking forward to working with
you in keeping our market clear of disruptive VAT fraud.
You can contact our indirect tax department at:
[email protected]
[email protected]
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