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What is carousel fraud?
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Carousel fraud is a type of tax fraud in which criminals exploit the value added tax (VAT) system in cross border trade. The fraud involves repeatedly buying and selling goods between companies in different countries to illegally reclaim VAT from the government.
Carousel fraud abuses the way VAT is applied to international trade.
In many countries, goods that are exported to another country are sold without VAT, while the importing company charges VAT when the goods are sold domestically. In a carousel fraud scheme, a company imports goods VAT free, sells them with VAT, collects the tax from the buyer, and then disappears without paying the VAT to the tax authorities. The goods are often moved through a chain of companies and may even return to the original seller, which is why the scheme is called a “carousel.” Carousel fraud is illegal in most countries, just like other forms of financial fraud such as Ponzi schemes and pyramid schemes.
Short example:
Suppose a company imports mobile phones from another country without paying VAT.
The company sells the phones domestically and charges VAT to the buyer.
Instead of transferring the collected VAT to the government, the company disappears. Meanwhile, another company in the chain claims a VAT refund on the same goods. By repeating this process through multiple companies, criminals can illegally obtain large amounts of money from tax authorities.
Disclaimer: Investing brings risks. Our analysts are not financial advisors. Always consult an advisor when making financial decisions. The information and tips provided on this website are based on our analysts' own insights and experiences. Therefore, they are for educational purposes only.
