Zappers - Retail VAT Fraud

Abstract

Zappers skim cash sales at retail. Zappers are add-on programs used by merchants with electronic cash registers (ECRs) or point-of-sale (POS) systems. Zappers are smart and selective. They do not skim all sales, and they never skim credit card transactions.

Although they are present in every jurisdiction, Zappers appear to be most widely used in developed economies that combine high levels of cash sales with high rates of consumption tax. Sweden, for example, has a cash-intensive economy, one of the world’s highest VAT rates (25%), and also reports that 70% of the ECRs in the country are either “… constructed for manipulation or have had software installed that allow sales to be manipulated (Zappers)…”

Tax losses in the EU can be estimated at approximately $23 billion per year in the restaurant sector alone. Germany tops the list followed by the UK, France, Italy and then Spain.

  Country      Revenue Loss (in millions)   Country     Revenue Loss (in millions)  Austria		508.7			Latvia			 58.4  Belgium		600.5			Lithuania		100.1  Bulgaria	 45.9			Luxembourg		 79.2  Cyprus		 33.4			Malta			 16.7  Czech Republic	404.5			Netherlands	      1,042.5  Denmark	        316.9			Poland		      1,030.0  Estonia		 41.7			Portugal		362.8  Finland		296.0			Romania		        417.0  France [3]    3,294.3			Slovakia		183.5  Germany [1]   4,503.6			Slovenia		 87.6  Greece		529.6			Spain [5]	      2,160.1  Hungary		304.4			Sweden			529.6  Ireland		291.9			United Kingdom [2]    3,448.6  Italy [4]     2,806.4		    

                           TOTAL        23,593.9  

This is not the only marketplace where the tax/technology intersection is problematical. On a far larger scale MTIC (missing trader intra-community) fraud is also a technology driven theft of public revenue by criminals. These frauds include the well known carousel frauds in cell phones and computer chips, MTIC fraud in CO2 permits, the yet to be fully investigated VoIP MTIC, as well as MTIC in the electricity and gas exchanges.

Tax authorities are fighting back all along the technology front. There are intensive traditional audits as well as concerted efforts to blunt the effectiveness of the fraud with technology. But, if there is one distinguishing characteristic of Zapper enforcement efforts it is that here the authorities are embracing technology-based solutions. This effort to fight technology-with-technology has produced a measure of success as well as helped develop strategic partnerships around solutions. Cooperation is evident.

Keywords: Zapper, VAT Fraud, BMC, Inc., Sales Recording Module, eTax, Sales Data Controller

JEL Classification: H00, H20, H26, K34, K42, O23, O33