The report explains that from the age of 16 he began buying mobile phones from Luxembourg and the Netherlands, which he sold on via e-commerce site eBay. He became a multi-millionaire by selling phones, game consoles, and CO2 emissions certificates across borders without paying VAT, in a racket known as VAT carousels.
The practice works by trading goods between EU member states several times, incurring no VAT because member states have different VAT rates. One example cited in the investigation is if a person buys a car in France at 0% VAT and sells it on in Germany with a 19% VAT surcharge. The trader is “obliged to pass this onto the tax office but instead keeps the money,” the report explains. It adds that by the time the tax office notices, the vendor will have disappeared.
The practice, which began some 25 years ago, is thought to be widespread. The report also says that the revenues generated through such frauds are used to finance terror.
While the Correctiv article focuses heavily on Germany, Luxembourg journalist Laurent Schmit, who worked on the investigation, writes on Reporter.lu that Luxembourg is not outside of the scope of the investigation. He said that although the impact is minimal in the grand duchy because, as the finance ministry says, it is “virtually never the country where the loss for the budget occurs,” letterbox companies established there help facilitate the system. He also points out the practice poses a risk to respectable companies, particularly those in the financial sector.
Furthermore, Schmit says Luxembourg has one important asset--it holds much of the information that would make it possible for larger countries, like Germany, France and Italy, where tax fraud is most common, to investigate.
Schmit suggests the 18-strong Luxembourg anti-fraud department is struggling to combat what is just one part of their job. He also cites an expert, who says successfully pursuing a case requires enormous resources.
Both the Correctiv article and Schmit’s article stress that lack of cooperation between member states on tax issues as being the main barrier to ending this practice.