"Carousel" fraud

• Four people arrested after five house searches carried out in Ciudad Real and Albacete, in which a large amount of documentation was seized
• Judicial precautionary measures have been adopted with the blocking of bank accounts and seizure of real estate and vehicles belonging to the persons and entities related to the fraud.
• The dismantled organization would have introduced vehicles worth 18 million euros into Spain, defrauding 3.5 million euros of VAT payments in two years

June 8, 2023.- The Tax Agency has dismantled a criminal organization that, through a network of fictitious shell companies, introduced vehicles into Spain from the European Union which it then sold in our country through distribution companies without paying the corresponding taxes. In the operation, four people were arrested, the perpetrators and organizers of the fraud, as well as their accomplices, and all of them were brought to court.

The organization, which operated in Castilla-La Mancha, would have introduced vehicles worth 18 million euros, defrauding 3.5 million euros of VAT payments, between 2021 and the first quarter of 2023 in the vehicle purchase and sale sector. used.

The start of the judicial investigation, carried out by the Court of First Instance and Instruction No. 2 of Tomelloso (Ciudad Real), begins with the complaint filed by the Regional Inspection Unit of the Tax Agency in Castilla-La Mancha after a previous investigation procedure in relation to the companies involved.

During the exploitation phase of the operation, five house searches were carried out in the towns of Tomelloso (Ciudad Real), Hellín (Albacete) and Albacete capital, which led to the seizure of a large amount of documentation on the fraudulent operations detected and whose analysis will allow evidence to be added to that already obtained so far in the judicial investigation. In addition, 20,000 euros in cash were seized.

Seizure of assets and blocking of accounts

Within the context of the operation, judicial precautionary measures have been adopted with seizures of real estate in the name of the holding companies of the directors of the scheme and with the blocking of bank accounts and seizure of vehicles of the entities and persons involved in the fraud.

The support of the Albacete Public Prosecutor's Office and its development and execution by the Customs Surveillance Service of the Tax Agency, in its role as judicial police and in close collaboration with the assistance of the Tax Inspection, has allowed the completion of the operation, carried out on May 16 and in which 28 officials were involved, of them 19 from Customs Surveillance, five from the Inspection Area and four from the Computer Audit Unit.

In addition, the existing collaboration agreement between the Tax Agency and the General Directorate of Traffic for the fight against tax fraud in vehicle transactions helped to locate suspicious vehicle registrations at the initial stages.

Fraud methodology

The fraud mechanism used by the scheme is the usual one in the so-called 'carousel fraud'. Spanish fictitious companies, called 'introducing trout', pretended to directly acquire used vehicles from European suppliers, already registered in the country of origin, through intra-community deliveries of goods under the general VAT regime, thus acquiring them exempt from VAT.

These 'introducing trout' then sell the vehicles to other Spanish entities, the distributor entities. However, the Spanish 'fictitious introductory trouts' do not enter into public coffers the VAT accrued on their sales and expressly charged on their invoices to the distributors, who do deduct an output VAT not paid by the 'introductory trouts'. Furthermore, to make their detection more difficult, the 'fake' companies were periodically replaced by new ones.

This mechanism allowed distribution entities to sell vehicles at a much lower price, thanks to the margin provided by prior VAT fraud.

The directors of the distribution entities, despite the appearance created as independent entities, actually controlled the 'introducing trout' and formally channelled the acquisitions of used vehicles to the suppliers of the European Union through them, so their interposition was a mere appearance, since the material reality is that the entire process of purchasing the vehicles at the source was carried out and controlled by the same managers.

'Remote tricks' to make fraud detection more difficult

To make fraud detection more difficult, there has also been evidence of simulated interposition in the chain of transactions for the acquisition of vehicles from foreign shell companies, known as 'remote shells'. Its function within the fraudulent scheme is to change the applicable VAT regime.

These entities receive invoices under the ordinary VAT regime for intra-community deliveries of exempt goods and improperly change the tax regime. Thus, they issue invoices to Spanish distribution entities under the special regime for used goods (REBU), or the margin regime in other countries, which is legally incompatible. The directors of the distribution entities actually also control these shell companies, the 'remote trouts'.

With this last method of fraud, Spanish distribution entities are formally enabled to issue, in turn, invoices to their clients in the REBU regime, with which these clients (across the entire distribution chain) will also issue invoices to their clients in REBU, achieving an artificial reduction in their VAT taxation. In the REBU, the income made through VAT is minimal compared to the general regime, in which VAT must be expressly passed on to customers at 21% of the sales amount and deposit that amount into the Public Treasury.

Meanwhile, at the Provincial Traffic Headquarters, the organization processed the new registration of used vehicles in Spain, after passing through the Technical Inspection of Vehicles, providing documentation of the transactions formally and simulated, as justification of the ownership of its registrant. The network sometimes altered this documentation to try to avoid registration controls.

A European problem

This type of intra-community fraud occurs in the different member countries of the European Union, causing losses of tax revenue and distorting prices in the markets of the affected economic sectors, with the consequent harm to legitimate traders, who do comply with their tax obligations.

For years, community authorities have been paying special attention to intra-community 'carousel fraud', also called missing trader fraud, by adopting initiatives that reinforce the fight against this fraud with increased cooperation. between Member States and increasing the effectiveness of national VAT control systems, through appropriate reforms and the provision of appropriate means.

This operation is part of the policy of prevention, detection and fight against this specific fraud in which the Tax Agency has been working in a pioneering way for years with specialized investigation bodies.

The proceedings are ongoing and new judicial decisions may be adopted.