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Dinner with a stranger - a vanishing taxpayer and other methods of VAT fraud (part 1)

Przemysław POWIERZA
Tax Partner at RSM Poland

At present, there is probably no other such publically discussed tax as the VAT. And this is not because the rate is very high (23% is a “temporary” increase that has lasted only a little while, that is since 2011) but because a lot of this tax evaporates. From whom? From all of us - from those citizens who are more aware of where the money for roads, schools, theatres, museums, airports, police, fire and rescue services and even for a helpful clerk’s salary come from, as well as from those who have never given it much thought. They buy a bread roll with VAT at a shop, but they have never even seen a VAT-7 return, just as they have never heard of the state coffers ever running out of money because they know for a fact that they are always stuffed.

The fact of the matter is that the state coffers are only full provided that taxes are efficiently collected. VAT is one of the taxes that make up a considerable proportion of the overall budget - according to the Polish Ministry of Finance, the recovered VAT amount constituted over 40% of the budget in 2016 (a total of PLN 126.6 billion was collected.) If this pool of funds is looted, on a large scale, serious problems are inevitable. A public finance crisis is the bane of those governments which tend to give a lot out and boast about it, as well as of those which build stable welfare on reasonable savings. The problem is, however, that this is our money even though it is managed by the officials. Therefore, we have the right to expect that they will not allow for us to be ripped off.

So, when we hear that so many tax investigations have been conducted and so many VAT fraud attempts have been thwarted, we should be able to sleep peacefully. Well, maybe some eyebrows will be raised over the fact that the number of remedied VAT fraud cases is never publically discussed. Yet, the bottom line is that we can sleep peacefully for as long as no tax fraud investigation is pursued against us. Yes, against us, the honest taxpayers. How is that possible?

Let us imagine a situation: we invite a promising contractor to an exclusive restaurant for a business dinner. So far, we have had very fruitful discussions with them, they seem competent, have impeccable manners and dressed up well for the occasion. This trendy restaurant is very popular with top businessmen and women. All of the sudden, it turns out that our guest disappears without a trace around mid-dinner. However, they managed to order (as well as eat and drink) the most expensive meal and drinks the restaurant offers. Our waiter demands that we foot the bill for the entire meal and he voices his concern aloud. Meal extortion? In our company? We have no other alternative but to pay it hastily as any further argument seems inappropriate at the very least. The meal was ordered to a table, the table must pay. In any case, the walls have ears and we cannot afford bad publicity...

The above is just an innocent example and it is a pity that it bears a reference to some of the most serious cases of VAT fraud and the manner in which our national Tax Administration deals with them. But this will be the next subject our blog will deal with. 

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