VAT Refund Fraud

About

Actions involving the provision of false information in tax returns for the purpose of unjustified tax refunds are punishable in Poland and can result in liability in the form of multi-million dollar fines of up to PLN 33 million (EUR 8,25 million) and imprisonment. It is not always possible to speak only of a tax refund here, the act can also be committed when the taxpayer, by his behavior, leads to the credit of the tax surplus to tax arrears or current or future tax liabilities.

An offense related to VAT refunds will be the very attempt to obtain a VAT refund, resulting from a return filed with the tax authority. The taxpayer must bear in mind that it is therefore punishable to act in a way that will result in the exposure of depletion of budget revenues. In practice, VAT refund fraud can be committed with violations of other laws in force in Poland, in particular the so-called intellectual forgery. The VAT invoice in the legal system is considered a special type of document, and the person obliged to issue it, if he confirms unreliable transactions in it, exposes himself to criminal liability under Article 271a of the Polish Criminal Code and 62 § 2 of the Polish Fiscal Criminal Code. In the case of issuing or using unreliable invoices relevant to the determination of the amount of tax liability, containing the amount of receivables, the value of which or the total value of which is greater than PLN 10 million (EUR 2,5 million), the taxpayer commits a special crime, which is punishable by imprisonment from 5 to 25 years.

Another element that can be crucial in a VAT refund fraud case is the possibility of filing a correction to the tax return. However, all the circumstances of the case should be carefully examined, as a filed correction of the tax return does not always protect against liability for all tax crimes and offenses under the Fiscal Criminal Code. This has been confirmed by the Supreme Court, indicating that not all offenses stipulated in the Fiscal Criminal Code can be “remedied” by filing a correction to the tax return and paying the depleted public receivable (and therefore with interest for late payment).

Applying for repayment of the tax will, as a rule, trigger control actions by the tax authorities and the interest of the criminal tax authorities. In the case of multimillion-dollar VAT invoices and so-called carousel schemes, perpetrators often face arrest and the risk of detention on remand. The first procedural activities involving the taxpayer are extremely important from the perspective of creating a defense line. So, as you can see, the role of defense counsel in proceedings related to VAT refund fraud is to extensively investigate the circumstances of the initiation of criminal fiscal proceedings. Also at stake is the earliest possible filing of requests for evidence that can clearly relieve the suspect of the charges against him of involvement in a carousel scheme or other VAT refund fraud.

Our support for taxpayers includes:

providing legal advice;
analysis of evidence;
preparation of recommendations for further action and litigation strategy;
analysis of recent rulings that may be beneficial to the client;
active participation in the proceedings, including submission of evidence and participation in hearings;
representation of the client at all stages of the proceedings;
filing appeals against procedural decisions,
conducting training in the above-mentioned areas.

Our offer is addressed to:

persons suspected of committing VAT refund fraud;
accountants, finance directors and other financial professionals;
companies seeking support in the area of criminal compliance;
entities wishing to make effective adjustments to tax returns.

Summary: VAT fraud

In recent years there have been fraud cases where value added tax refund claims have been used in the fraud scheme (by individual or business). The cases are frequently detected by the tax administration after the VAT has been refunded. The general experience from these cases is that it is difficult to recover the losses – the tax fraud has to be stopped before the VAT is refunded.

Tax evasion is an illegal attempt to defeat the imposition of taxes. Tax evasion often entails the deliberate misrepresentation of the taxpayer’s affairs to the tax authorities to reduce the taxpayer’s tax liability, and it includes dishonest tax reporting, declaring less income, profits or gains than the amounts actually earned, overstating deductions, using bribes against authorities in countries with high corruption rates and hiding money in secret locations.

Business owners are expected to have a clear understanding of the amount of repaid VAT they should be due, but because of the nature of trade, mistakes sometimes happen. However, if those mistakes result in an individual being accused of VAT repayment fraud, the penalties are likely to be severe.

TAX Refund

Businesses that regularly submit VAT refund claims—such as those making zero-rated supplies or engaging in cross-border activities within the EU—should pay particular attention to keeping their bank details and company information up to date with their national tax authorities. It is recommended to regularly check registered data through the appropriate electronic portals provided by national tax administrations.

Large enterprises can collaborate with dedicated compliance managers or tax advisors to streamline the refund process and proactively address potential issues.

To request a VAT refund, claimants must submit an electronic refund application to their national tax authorities via the electronic portal established under Directive 2008/9/EC. The national authorities will confirm the claimant’s identity and the validity of the application before forwarding it to the member state where the purchase occurred, if necessary.

Fraud and Penalties Related to VAT in the European Union

The European Union takes VAT fraud very seriously due to its significant impact on the EU budget and the economies of member states. Penalties for VAT refund fraud can vary depending on the member state but generally include:

Financial Penalties: Offenders may be required to pay a penalty calculated as a percentage of the unpaid VAT, which can be substantial depending on the severity of the violation.
Interest Charges: Additional interest may be charged on the unpaid VAT amount from the due date until the date of payment.
Criminal Proceedings: In severe cases, individuals and entities involved in VAT fraud may face court proceedings, resulting in fines and imprisonment.
Reputational Damage: A conviction for VAT fraud can cause significant reputational harm, affecting business relationships and future operations.

Each EU member state implements its own national legislation in line with EU directives, so specific penalties and procedures may vary. Therefore, it is crucial for businesses operating within the EU to be aware of VAT regulations and compliance requirements in every country where they conduct business.

Preventive Measures

Regular Compliance Checks: Businesses should regularly audit their VAT transactions and ensure accurate record-keeping.
Professional Advice: Collaborating with professionals or tax advisors knowledgeable in EU VAT regulations can help navigate complex cross-border transactions and minimize the risk of non-compliance.
Staying Informed: Keeping track of changes in EU VAT regulations can help businesses adjust their practices in line with current laws.

Conclusion

Businesses operating in the European Union must be aware of the applicable VAT refund regulations and the potential consequences associated with non-compliance or fraud. Ensuring compliance with the laws, maintaining accurate records, and utilizing professional advice are crucial for safe and effective operations in the EU market.

Protect Your Business from VAT Fraud with Expert Legal Assistance

VAT fraud poses significant financial and legal risks, including severe penalties and reputational damage. Navigating these challenges requires skilled and experienced legal support. Our law firm specializes in providing comprehensive assistance to businesses and individuals involved in VAT-related cases, offering proactive strategies, effective defense, and professional guidance tailored to your needs.

Whether you are facing allegations of VAT refund fraud, need support with tax compliance, or require assistance in addressing tax authority inquiries, we are here to help. Our team of legal experts will analyze your case, prepare a solid defense strategy, and represent you at every stage of the proceedings.

Don’t let VAT-related challenges jeopardize your business or reputation. Contact us today for expert legal support and ensure your interests are safeguarded by professionals who understand the complexities of VAT law and compliance.

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