Operation ‘Sith’

• The operational phase of activity was completed with 19 arrests, five of which are now in prison without bail, following 11 searches in Guadalajara, Madrid, León, Valladolid, Valencia and Alicante
• Those investigated were responsible for 25 million euros worth of fraud over three years, generated through a network of figureheads and instrumental companies located in Spain and elsewhere in Europe
• As part of the operation, led by 70 officials from the ONIF (the National Anti-Fraud Office) and the Tax Agency's Customs Surveillance and Investigation Service, 90 bank accounts were blocked, 11 high-end vehicles were repossessed, and 165,000 euros in cash were seized

 

June 1, 2017.- The Tax Agency has dismantled an organization dedicated to VAT fraud in the IT and electronics sector that allegedly defrauded more than 25 million euros in a period of three years. Operation 'Sith', in which 70 officials from both the National Anti-Fraud Office (ONIF) and other regional Customs Surveillance and Investigation departments, was completed on 25 May with the arrest of 19 people, five of whom are now in prison without bail, as well as five searches in six provinces, bank account blockages, vehicle repossessions and cash seizures.

Within the framework of operation 'Sith', and under the management of the Examining Magistrates' Court no. 3 of Guadalajara, 11 searches were held in the provinces of Guadalajara, Madrid, León, Valladolid, Valencia and Alicante, during which large amounts of documentation were found pertaining to the fraudulent operations detected, both on paper and in digital format. The analysis of this documentation will lead to new evidence to add to what has already been obtained in the legal investigation held previously.

The investigations, initiated by the ONIF and the Regional Inspection Unit of Castilla La Mancha, were focused on a network of companies dedicated to VAT fraud in the IT and digital sector, and were carried out as a collaboration between the Regional Inspection Unit of Castilla La Mancha and the Regional Operational Headquarters of the Customs Surveillance Department of Castilla La Mancha.

 

Network of shell companies

Those investigated had created a plot based around VAT fraud in the commercialisation of products, using a complex structure of companies in Spain and Portugal. The goods that were subject to fraud were coming directly from a European supplier to logistics warehouses in Spain, from which they were simultaneously distributed to commercialisation channels. However, and with a single objective to avoid paying VAT, a range of shell companies were created for this purpose in other European countries and in Spain.

Given that, in accordance with VAT regulations, the indirect tax is not paid in intra-Community acquisitions but rather on sales within Spain, the companies bringing the goods into Spain had to pay very high amounts of VAT, as the tax was not supported on their purchases but could be passed on to sales.

This is where the commission comes in from the suspected fraud being investigated. Its rapid expansion was also caused by the ability to reduce the price of the products being sold thanks to the margin provided by the VAT fraud.

As part of the investigation, it was confirmed that the shell companies in Spain and abroad were in fact run and controlled by the same people. Furthermore, to make detection more difficult, they were periodically replaced with new companies, with figureheads placed at the top.

Within the context of the operation, legal and asset-based cautionary measures were adopted to block 90 bank accounts corresponding with the shell companies and those suspected to be involved in the network, as well as to repossess 11 high-end vehicles and seize 165,000 euros in cash.

The legal inquiry began with an allegation presented by the Regional Inspection Unit of Castilla La Mancha, with the support of the plots unit of the ONIF and the Prosecutors, as well as the collaboration of regional inspection departments in Valencia and Castilla León, and operational Customs Surveillance units in Castilla La Mancha, Madrid, Castilla León and Valencia, working as judicial police. Currently the operation is ongoing, and new judicial decisions may be adopted.

 

A European problem

The type of intra-Community VAT fraud used by the now-dismantled organisation exists in different Member States of the European Union, generated significant losses of income and serious price distortion in the markets of the affected economic sectors, damaging legitimate merchants who comply with their tax obligations.

The situation has determined that, for years, EU authorities have paid special attention to the so-called intra-Community carousel fraud, or missing trader fraud, by increasing the administrative cooperation between Member States and making the national VAT control systems more efficient.

The Spanish Tax Agency, a pioneer in various aspects that affect the prevention, detection and fight against this specific type of fraud, has been working on this line for years through specialised investigation bodies, and this is the context in which the operation carried out was able to take place.

 

Photographic annex