Belgium’s Successful Crackdown on Carousel Fraud: A Model for Europe?

Carousel fraud is a complex and highly profitable form of tax evasion that has been plaguing European countries, with an estimated annual cost of nearly 100 billion euros (US$132 billion) to taxpayers. Belgium, however, has developed an innovative solution that has led to a remarkable 98% reduction in losses.

The Problem

Carousel fraud is a type of value-added tax (VAT) theft that exploits weaknesses in the VAT system. It involves a network of conspirators who sell goods to each other in a way that allows them to accumulate huge amounts of VAT without paying it to the government.

Belgium’s Solution

Belgium’s Special Tax Inspectorate (ISI), a division of the Federal Public Service Finance, has implemented an advanced analytics technique called the hybrid detection model from SAS. This approach uses multiple analytical techniques, including social network analysis, to uncover fraudulent transactions.

Key Factors in Success

• Risk analysis using advanced analytics allows the ISI to quickly identify companies at risk of fraudulent activity.
• The ability to take action before significant damage is done has been crucial in preventing losses.

Results

The hybrid detection model has been highly effective in Belgium, where losses from VAT fraud have decreased from 1.1 billion euros in 2002 to a negligible 18.5 million euros in recent years.

Potential for European-Wide Solution

Hulot believes that this approach could be applied across Europe, where the situation varies greatly from country to country. A centralized solution would make it possible for governments to save enormous amounts of money and effectively combat carousel fraud.

Challenges

• There are concerns about sovereignty that need to be addressed.
• Hulot suggests that a centralized analysis could be entrusted to Eurofisc, which already has a lot of business knowledge and experience in this area.

Conclusion

The Belgian experience serves as a model for other countries struggling with carousel fraud. By implementing advanced analytics techniques and combining different analytical approaches, tax authorities can effectively combat this sophisticated form of fraud and protect taxpayers from financial losses.