Bulgarian Consultants Aid Romanian Businessmen in Tax Fraud Scheme, Romania’s State Budget Takes a Hit
A Massive Tax Fraud Scheme Exposed
A joint investigation by Context and BIRD, partners of the Organized Crime and Corruption Reporting Project (OCCRP), has uncovered a massive tax fraud scheme involving Romanian businessmen and Bulgarian consultants. The scam, known as the “missing trader intra-community” method (MTIC), exploits zero-tax rules for trade between European Union members.
How it Works
Perpetrators establish shell companies in Bulgaria, engaging in VAT-free trade with EU countries. They import goods without paying Value-Added Tax (VAT), sell them domestically, and charge local buyers VAT without remitting the value to tax authorities. The importing firm then commits fraud, closes down, and evades legal action.
The Consequences
MTIC is one of the most common forms of tax evasion in the European Union, costing nearly 50 billion euros annually, according to Europol. This scheme has had a significant impact on Romania’s state budget, hampering necessary development projects.
A Growing Problem
Romanian prosecutor Laura Codruta Kovesi, Head of the European Public Prosecutor’s Office, highlighted the issue, stating that cross-border tax evasion has been tolerated and ignored by many EU states for years. She emphasized the consequences, noting that without the necessary funds in Romania, essential services suffer.
The Data
A 2023 European Commission report on VAT collection revealed that Romania has the largest VAT gap among member states, failing to collect 36.7% of expected contributions in 2021. In comparison, Germany, with an economy 15 times larger, left only 7.5 billion euros uncollected.
The Role of Bulgarian Consultants
The investigation found that Ruse-based consultants aided Romanian businesspeople in setting up firms in Bulgaria, offering headquarters and identifying socially vulnerable individuals to front the companies for minimal payment. The three most prolific consultants discovered had established hundreds of shell firms, with one consultant boasting a “Tax haven in the EU” on their website, setting up 230 firms.
The Scope of the Fraud
Eight of these firms, controlled by entrepreneurs in Romania, were involved in significant tax frauds, including embezzling European Structural and Investment Funds by inflating the value of imported goods. One scheme involved overvaluing machinery exports between a Chinese exporter and a Romanian manufacturer, leading to the embezzlement of almost one million euros.
The Impact on Romania’s Budget
Romania’s national tax collection authority identified 140 fraud cases involving Bulgarian companies over the past decade, causing damages exceeding 250 million euros. Amid financial struggles, the Romanian government considered measures such as tax increases and spending freezes.
A Call to Action
Kovesi emphasized the importance of prioritizing the fight against organized crime, stating that cutting off their funding is crucial to combating crimes such as drug trafficking. The investigation highlights the need for increased cooperation between EU member states to combat cross-border tax evasion and protect national budgets.