France: Avoiding VAT carousel fraud

France: Avoiding VAT carousel fraud

Value added tax (VAT) on purchases of goods is not deductible when it is shown that the purchaser was involved in a plan of “fraud” not to pay the VAT due on the purchase. If the tax authorities can demonstrate that the purchaser knew or must have known about the fraud being committed by the supplier, the tax authorities can reclaim the amount of VAT deducted as well as impose penalties of 40% or 80% (depending on the level of fraud).

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To help companies limit their risk exposure to such “carousel-type fraud,” the French tax authorities have published a non- exhaustive list of indicators, intended to assist businesses in identifying “risky suppliers.” The factors relate to:

  • Certain general characteristics of the supplier—e.g., invalid intra-community VAT number, engaging in operations that are not related to its normal activity, operating in a sector prone to carousel-type fraud
  • Characteristics of the transaction—e.g., an abnormally below-market price, no sales contract, large down-payments compared to the total amount of the invoice
  • Terms for payment—e.g., no bank account, demands for cash payments or for quick payments

Companies may also consider evaluating their internal processes to counter any fraudulent VAT scheme.

Read a July 2015 report [PDF 35 KB] prepared by Fidal* in France: VAT Carousel Fraud: How to Recognize Risky Suppliers?

 

* Fidal is a French law firm that is independent from KPMG and its member firms.

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