The Directorate of Internal Revenue (DIR) believes organized tax fraud related to the construction industry amounted to ISK two billion (USD 15.4 million, EUR 13.6 million) last year, according to RÚV. Companies issue baseless bills in a web of wide-ranging tax- and compensation fraud.
A special team from the DIR has noticed an increase in fraud related to construction and contracting services. The frequency of these violations has increased with the upswing in this sector. “Out there, there are firms with the sole purpose of issuing bills. No real operation exists within these firms,” says Sigurður Jensson, head of the division of monitoring for the DIR.
The web of fraud is intricate. This is how it works: Firm A operates normally. Firm B does nothing but issue fraudulent bills for non-existing service sold to firm A. Firm A pays the bill, gets the value-added tax refunded, increases its reported expenses by paying the bill, and reduces, at the same time, its income tax base. Firm B withdraws the payment from the bank and may use the cash for unreported wages on which no tax is paid. Its employees may even be receiving compensation from the government, too. Oftentimes, a number of firms are involved so the track of fraud may be better hidden.
“This baseless billing amounts to ISK 2 billion and we have referred this to criminal proceedings,” Sigurður explains. “We estimate that loss to the national treasury is between ISK 1.5 and 1.6 billion [USD 11.6-12.3 million, EUR 10.2-10.9 million]. So the violations are very serious.”
At issue are 20 cases responsible for those ISK two billion. There are also indications that this fraud is related to other criminal activity. The DIR is looking at ways to respond to the fraud. Sigurður claims the same individuals conduct this activity repeatedly. He believes the law must be changed to prevent that from happening.