| VAT evasion is a heading that covers a whole range | | | | the future. The circumvention of rules governing |
| of different types of fraud. The most well-known of | | | | distance selling is also penalized as tax evasion. |
| them are so-called "under reported" sales. This means | | | | Forging documents to benefit from preferential |
| that sales made are not reported to the tax authorities | | | | customs tariffs and the deliberate use of incorrect |
| and in some cases no VAT is charged. The greatest | | | | customs classification are also widely used practices in |
| challenge, however, are orchestrated attacks against | | | | organized tax evasion. |
| the VAT system and thus against the stability of public | | | | Field audits |
| finances. These types of fraud effectively exploit the | | | | Inspections and investigations are conducted to gather |
| system of value added tax collection and input tax | | | | facts of fiscal relevance and information for the |
| reclamation, with one party to a transaction failing to | | | | determination of existing tax obligations. Tax audits are |
| pass on VAT proceeds to the tax office while the | | | | carried out by tax office audit units (with the tax office |
| other party reclaims the input tax shown in the invoice | | | | usually being responsible for auditing small and |
| from the tax office. Such schemes are frequently | | | | medium-sized enterprises) or large trader audit units |
| operated by businesses that are set up for the sole | | | | (special units auditing large and very large enterprises). |
| purpose of VAT evasion and close down again after | | | | A special priority area are special VAT audits, which |
| just a few months. Deliberate failure to report or pay | | | | often result in the detection of large-scale tax evasion |
| VAT results in massive tax evasion. | | | | or insufficient tax payments, deferments of tax and |
| In 2008, tax audits carried out by the tax offices | | | | inadequate record-keeping. |
| resulted in the additional assessment of more than half | | | | The focus of tax audits is on the retrospective |
| a billion Albanian Leks (1 Euro is equal to 135 Leks) in | | | | reviews of balance sheets and tax returns filed by |
| VAT from businesses, with the lion's share of more | | | | businesses. The findings of such audits relate to all |
| than 180 million Leks being accounted for by unjustified | | | | types of taxes (VAT, income tax, corporation tax, |
| deduction of input tax. As a result, the Albanian | | | | etc.). Besides the actual under reporting of revenues, |
| economy suffers a massive competitive disadvantage, | | | | which affects both VAT and income taxes, it is also |
| as competitors not paying their VAT liabilities are able | | | | divergent views on individual balance sheet items that |
| to offer goods and services at significantly lower | | | | results in significant additional tax assessments. Audits |
| prices than businesses honoring their tax obligations. | | | | generally cover periods for which annual tax returns |
| Artificial companies on demand | | | | have already been filed. The detection of major fraud |
| Especially in the construction and related industries, | | | | cases requires rapid intervention on the part of the |
| setting up fake companies for the systematic evasion | | | | auditors. Audit activities performed at short notice, |
| of wage taxes and social security contributions is a | | | | including special VAT audits, permit the rapid |
| widespread practice. The "lifecycle" of such | | | | identification of artificial firms, fictitious invoices and |
| companies is short (not more than one fiscal year); | | | | cases of carousel fraud. |
| therefore new supplies of new artificial companies are | | | | Another key component of the audit work conducted |
| being created in an ongoing process. The only purpose | | | | by the financial authorities is the "joint audit of |
| of fake companies: tax evasion and social security | | | | wage-related taxes and charges". Different types of |
| fraud. However, as liability rests only with the | | | | wage-related taxes are no longer checked by |
| managers of these enterprises and they are usually | | | | different people at different times, but all wage-related |
| just front men, it is generally very difficult to actually | | | | taxes are verified by one audit official working for |
| hold anyone accountable for the fraud. | | | | either the tax office or the social security organization. |
| Tax evasion | | | | This way, wage tax, social security contributions and |
| Organized tax evasion very often involves unlawfully | | | | municipal taxes can be audited simultaneously, which |
| benefiting from tax-exempt supplies or export refunds. | | | | greatly improves the efficiency of such controls. |
| It also includes non-payment of VAT as a result of | | | | In 2009, 195 auditors and investigators were engaged |
| insolvency and the subsequent establishment of a new | | | | in monitoring legal compliance by large, medium-sized |
| company, a method that is applied quite systematically. | | | | and small enterprises. The extra tax revenues |
| In such cases, one-sixth of the amount that is paid for | | | | assessed as a result of more than 2,110 audit |
| an item by the consumer - and thus by any member | | | | procedures amounted to Leks 25.2 million. |
| of the public - flows into organized tax fraud schemes. | | | | The most important task is to not only respond after |
| Because of this "willful" failure to pass on VAT to the | | | | the fact to offences already perpetrated, but to also |
| tax authorities, the "seller" is able to sell goods | | | | analyze potential risk scenarios in advance and to |
| significantly cheaper than an (honest) competitor. This | | | | attain control by means of strategic and organizational |
| VAT share of one-sixth of the selling price is often | | | | measures. For this purpose, cooperation with national |
| higher than the trader's "gross profit margin". | | | | and international authorities has to be developed |
| It is quite obvious by now that massive tax losses | | | | further and maintained. This is done through periodic |
| occur in a number of industries and that tackling this | | | | formal and informal contacts and the exchange of |
| type of fraud will be one of the greatest challenges of | | | | experiences and information in specific areas. |