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Italy: EPPO arrests suspected ringleader of €28 million VAT fraud scheme

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On behalf of the European Public Prosecutor’s Office (EPPO) in Venice (Italy), the Italian Financial Police (Guardia di Finanza) – Provincial Command of Piacenza have arrested the suspected ringleader of a VAT fraud scheme involving several countries, with estimated losses of €28 million.

The order of detention of the Italian suspect, based in the Emilia-Romagna region, but actually living in Poland, was issued by the judge for preliminary investigations of the Court of Padua and executed between 4 May and 9 May 2023.

The investigation, conducted by the Economic and Financial Police Unit of Piacenza, gathered evidence of the existence of a criminal association aimed at committing so-called intra-community VAT ‘carousel’ fraud – a complex criminal scheme that takes advantage of EU rules on cross-border transactions between its Member States, as these are exempt from value-added tax (VAT). According to the investigation, the illegal proceeds were then subsequently laundered.

It is alleged that the association, operating as a criminal group, purchased electronic products abroad, using a series of fictitious companies based in Italy and in the European Union, in order to evade the payment of VAT. The investigation uncovered 70 shell companies (34 based in Italy, and the remainder in Austria, Belgium, Bulgaria, Czechia, Germany, Latvia, Lithuania, the Netherlands, Poland, Slovakia, Slovenia and Spain), as well as more than 20 persons implicated.

It is understood that the scheme made it possible to generate millions in VAT credits. The sales of technological and IT products at a much lower price than that charged by honest businesses (in some cases, with discounts of up to 50%) also increased the illicit profits.

At the request of the EPPO, the judge for preliminary investigations of the Court of Padua ordered the freezing of assets of more than €28 million, in order to recover the damage to the national and EU budgets. The shares of a company belonging to the suspected ringleader, as well as real estate located in a historic building in the centre of Bologna, were seized.

VAT carousel fraud, or Missing Trader Intra-Community (MTIC) fraud, is the most profitable crime in the EU, costing around €50 billion annually in tax losses to the Member States, according to the latest estimate by Europol.