VAT Fraud Risk Indicators: Revenue Updates Guide

The Irish Tax and Customs Service (Revenue) updated a guide explaining how taxable persons can protect their businesses from VAT fraud. Considering that the EU is constantly pointing out how VAT fraud affects its and the national economies of EU countries, the guide is a valuable source of information that focuses on two key aspects: due diligence and risk indicators. Notably, the Revenue updated the risk indicators section of the guidance.

Risk Indicators of VAT Fraud

Due diligence is essential, especially when entering into a business transaction with a new or unknown party, to safeguard the interests of all parties involved. Nonetheless, many risk indicators may help taxable persons spot the VAT fraud early on or throughout the business cycle.

One of the first indicators is that a transaction involves practices that differ from what is typically expected in the industry, as such deviations can often signal increased risk or potential irregularities. While due diligence provides the foundation for assessing a business partner, examining specific transaction characteristics is equally important. 

The Revenue outlined three key considerations for taxable persons when determining the characteristics of the transaction: the nature of the goods or services being supplied, payment arrangements and conditions, and details of the movement of goods involved. Additionally, the Revenue provided several indicators that could alert taxable persons to the risk that VAT may go unpaid. 

As stated by the Revenue, to have a clear understanding of the transaction and business partner, taxable persons should examine the legitimacy of suppliers, the commercial viability of the transaction, and the viability of the goods or services as described by the supplier. Moreover, the Revenue provided a non-exhaustive list of critical questions to determine whether the transaction is genuine, economically rational, and free of indicators of potential VAT fraud or non-compliance.

Conclusion

With Tax Authorities across the EU tightening the noose on fraudsters and introducing measures to reduce the risk of VAT fraud and evasion, the pressure is also rising on compliant taxable persons to ensure they are not part of these illegal activities. Taxable persons should be aware that even if they are not willingly participating in VAT fraud, they may still face consequences, such as being denied the right to deduct input VAT or to apply zero-rating to intra-Community supplies, or, in some extreme cases, harsher penalties.

Source: Irish Tax and Customs