Establishing VAT fraud in the case of cross-border supply

Originally, this exemption was mainly justified by the fact that the goods were taxed in the country of final destination (Article 20 VAT Directive; Article 283(2)(a) GTC). Intra-Community transactions are characterised by a transportation of goods between at least two Member States. Fraudsters are regularly tempted to take advantage of the administrative difficulties inherent in cross-border flows in order to avoid payment of VAT and/or deduct VAT that was not actually paid. Intra-Community supply exemptions have given rise to socalled ‘carousel fraud’. In France, Article 262(b)(I)(1), second indent, of the GTC provides for measures to prevent such fraud. Relying on ECJ case law,2 this article provides that ‘the exemption shall not apply where it is established that the provider knew or could not be unaware that the alleged recipient of the dispatch or transport had no actual economic activity’. Furthermore, Article 283(4)(a) of the GTC provides for joint liability between the seller and the buyer who knew or could not be unaware that all or part of the VAT owed would not be paid over to the State. The implementation of these measures destined to tackle VAT fraud on intra-Community supplies implies a capacity to establish such fraud in the first place. For clarity’s sake, we shall distinguish between evidence in favour of the taxpayer and evidence against him.