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Tax investigation unit: Tiles instead of smartphones at mobile phone shop International carousel fraud uncovered 

As part of a coordinated campaign of investigations, tax investigators conducting raids at mobile phone shop operators in Austria and Hungary recently discovered tiles which had been swapped for iPhones. The owners were suspected of being members of an international VAT carousel scheme. These successful investigation and the clear evidence seized enabled tax investigators to substantiate their suspicions.

During a search of the mobile phone shop of two fraudster brothers, the Viennese tax investigators noticed that, upon closer inspection of some packaged iPhones, the protective film had already yellowed. They also heard atypical noises when shaking the packaging. Upon opening a package, tax investigators were dumbfounded: Instead of new iPhones, the mobile phone packaging contained only brick fragments. The only thing the packages had in common with the well-known smartphones was their weight. The packaging was intended to avoid attention and was deliberately manipulated in such a way that no one would be suspicious when checking the weight of the deliveries during customs clearance. These "iTiles " were of course never intended for sale, but are clever props used for VAT fraud.

The bizarre discovery of tiles and brick fragments in iPhone packaging is an essential element of a particularly sophisticated fraud scam. In so-called carousel fraud, criminal traders fail to pay the usual VAT that is supposed to be paid by the buyer to the tax office, but generally claim the input tax deduction. Entrepreneurs are entitled to do this as part of their entrepreneurial activities. After they file the claim, the input tax is paid out by the tax office, which is how fraudulent businessmen illegally maximise profits.

However, in order to be able to operate this fraud scheme, goods (whether actual or fictitious ones) have to be moved within the EU. The goods transported from one Member State to another in the context of such supplies serve only one purpose: to evade VAT. In order to make as much profit as possible from the scheme, the goods used are mostly high-ticket items from the electronics sector, such as smartphones, tablets, game consoles, etc. Often, however, as in the present case, the goods are only fictitious. The packaging of the articles is deceptively genuinely, and have all the necessary customs papers to go along with them.

"As a rule, fraudsters react very quickly to our investigative successes and adapt to them," Christian Ackerler, Head of the Tax Investigation Unit, explained. He continued: "Whereas in the past criminals usually only falsified the papers necessary for a VAT carousel scheme, the products themselves are increasingly being faked to ensure that fraud is as successful as possible. All the more reason to be delighted that my investigators were able to stop these criminals in their tracks."

The discoveries made during the premises search enabled tax investigators to clearly prove that there was only one purpose behind these “products” and the corresponding papers: shuttling them through a supply chain as many times as possible in order to be able to claim deductions on the VAT incurred.

In addition to these fictitious smartphones, other relevant documents were seized.

In addition, 100 iPhone XR smartphones with a market value of around EUR 60,000 and a further 1,500 iPhone 7 phones valued at approximately EUR 500,000 were seized. As the company in question had underreported roughly EUR 450,000 in tax owed to the local tax office, cash in the amount of EUR 50,000 as well as other items of value were seized.

The operators of the mobile phone shop at which the raid occurred and the VAT carousel  scheme in which they were involved are the subject of ongoing investigations by tax investigation unit.

Consequently, it has not yet been possible quantify the amount of tax losses. Since the dummy iPhone packages found are only a small part of a complex fraud network and are estimated by tax investigators to equate to tax losses of EUR 110,000, it can be assumed that total losses will be considerably higher, but can only be quantified after lengthy investigations