When a company sells products or services, it adds value added tax (VAT) to the sales price of the products or services it invoices. As an entrepreneur, you may, without even knowing it, be part of fraudulent trading, in which a member of the trading chain seeks to avoid VAT payments. Usually, buyers of products or services end up as parties to VAT fraud, but you may also sell products or services to a fraudulent supply chain. Companies of any sizes and operating in any line of business are at risk of becoming involved in fraudulent activities. Companies are obligated to identify the tax reliability of their trading partners.
Entrepreneur – you are obligated to investigate
Finding out information about your trading partners is part of due diligence. Evaluate your trading partners’ tax reliability by identifying their delivery reliability and ability to pay, and by verifying the quality of products and services.
You will not be held accountable if you are involved in a fraudulent chain without knowing it. However, it is required that you have acted sincerely. In practice, this means normal diligence in business activities.
If you do not obtain information as obligated
If your trading partner has intentionally left VAT unreported or unpaid, the Finnish Tax Administration will assess your diligence. If you have not been sufficiently diligent, you may end up as the payer, even if you did not intentionally participate in the other party’s fraudulent activities or receive financial gain from it.
Different consequences are imposed on different roles:
- As a buyer, you may lose VAT deductions related to your purchases.
- As a seller, your potentially tax-exempt sales may be considered taxable.
<li class="attention-block__content">You receive offers that are “too good to be true” without requesting them.</li>
<li class="attention-block__content">The seller is a new company without any financial or commercial history.</li>
<li class="attention-block__content">Sales batches are large relative to the seller’s business history.</li>
<li class="attention-block__content">The company has insufficient expertise in the product or market.</li>
<li class="attention-block__content">Contact or responsible persons remain the same, while the company, its contact information or bank account changes repeatedly.</li>
<li class="attention-block__content">The company remains the same, but its employees change and its prices decrease significantly.</li>
<li class="attention-block__content">The seller requires cash payments, also in larger transactions.</li>
<li class="attention-block__content">Payments are made to a third party or in a foreign account.</li>
<li class="attention-block__content">Payments are requested to be made in several different accounts.</li>
<li class="attention-block__content">Payment arrangements do not appear reasonable, or they raise suspicions.</li>
<li class="attention-block__content">The company cannot be found in the VAT register, even though it is engaged in large-scale activities.</li>
<p>The Finnish Tax Administration has compiled signs that help companies more easily identify any fraudulent parties. Note that these factors do not directly hint at shadow economy activities. However, if you have reason to suspect your trading partner’s honesty, check its background diligently or even refrain from engaging in business activities with such a partner. Report your findings <a href="/link/dcceeb105cd94bd4af25bb5e9126f438.aspx?epslanguage=en">to the Finnish Tax Administration using the tax evasion report form</a>. Preventing abuse is everyone’s common cause. The Finnish Tax Administration’s goal is to ensure a level competitive playing field for honest parties by tackling dishonest activities.</p>
<li><a href="https://www.youtube.com/embed/bDnFApIpdsM?list=PLTSxsSRl7QAGGTt82t9Bec9Q03WiNiLR_">Entrepreneur – learn how to identify VAT fraud targeting your business [.ﬁ]› (video in Finnish) </a></li>
<li><a href="https://www.youtube.com/embed/8je7uGrFJsQ">Prevent VAT fraud (video in Finnish) [.ﬁ]›</a></li>
Act correctly to combat the shadow economy and financial crime