On 14 and 19 June 2023, the European Public Prosecutor’s Office (EPPO) carried out 27 searches in France and the Netherlands, in an investigation into VAT fraud involving car sales, with an estimated damage of €19 million. Four suspects were arrested and dozens of cars seized, as well as more than €1 million in cash.
At stake is a suspected criminal scheme whereby car companies fraudulently sell new vehicles as second-hand, in order to pay reduced VAT.
When selling legitimate second-hand vehicles, car companies only have to pay VAT on the margin they make (the difference between the price paid for the vehicle and the price for which it is sold), and not for the net value of the car.
However, it is suspected that the companies under investigation fraudulently converted new cars – on which payment of VAT in full is due – to second-hand cars, on which only part of the VAT is due (also known in some countries as ‘margin vehicles’). The suspected fraud also allowed cars to be sold at a lower marker price, thus causing unfair competition.
Fake transactions under investigation
According to the investigation, cars were bought from legitimate dealers in Germany by Dutch companies. The vehicles were then sold to shell companies (‘missing traders’) in France, and then bought back again. Ultimately, the cars were sold to private persons and companies in several EU countries (mostly France and the Netherlands) as second-hand vehicles. It is presumed that false invoices were used in this fraud.
The Dutch Fiscal Information and Investigation Service (FIOD) carried out 17 searches in the Netherlands and requested searches in Germany, on behalf of the EPPO. More than 34 cars were seized, as well as luxury goods and more than €900 000 in cash.
In France, the searches were carried out by the Lille section of the Financial Judicial Investigation Service (Service d’Enquêtes Judiciaires des Finances – SEJF). Ten searches were carried out at suspects’ homes and the premises of car dealers. Six vehicles, including luxury brands such as Mercedes and Audi, were seized, as well as €114 000 in cash and on bank accounts.
Two people were indicted in France for fraud and money laundering committed by an organised crime group. Both of them have been remanded in pre-trial detention.
It is estimated that €13 million was lost in unpaid VAT in France. In the Netherlands, the estimated damage is €6 million.