All in

6. THE OFFICE

"Amazing, how can people be so stupid," Kaspar muttered quietly to himself, flipping through the new investigation case on his laptop. From statements of accounts sent by various banks it could be quickly understood that the money was transferred from one company to various others in one clearly visible quite primitive chain. The money later merges in fictitious companies in both Latvia and Estonia, with homeless people from Belarus in the management. Cash was later withdrawn from the fictitious. No doubt, no one in this chain paid any taxes.

"I wonder how they find those Belarusians?" Edgar, sitting at the next table, asked Kaspar.

Edgar was a newcomer in the organization. He always wanted to catch the bad guys, so he was looking for a place in the Tax Police already during his studies. The youngsters were usually sent, at best, to the Intelligence Analytical Division, where also Edgar had just arrived. From the day one there was some nice chemistry with Kaspar, so it was arranged that they got an opportunity to work in the same office. Kaspars, though, initially was not happy to train yet another youngster. They usually come, realize that the job is not as easy as in the movies, and they are gone rather quickly. As a result, the training time is wasted. To tell the truth Edgar, in fact, looked like having a good potential - he quickly absorbed everything, was curious and hardworking, in short – there was a sparkle in his eyes. Therefore, Kaspars had decided to take another chance and invest his training time in him.

"Go and see yourself, no problem at all when walking at the outskirts of Minsk - for 100 euros many will sell you their grandma as a bonus to signing all the necessary documents," Kaspars muttered quietly. "There are frequent 50-minute flights to Minsk, which cost another 100 euros, and now you don't even need a visa anymore."

Edgar nodded and continued to study on his screen the scheme organizer's witness statement for the other episodes of his practice: "Everyone does it! It's simple - I find a person, who is working for a company, a buyer that wants to earn some money, let's call it LTD1. My company fakes, sorry - issues an invoice to this LTD1 for a service that never happened, receives the payment, declares it to the tax authorities and withdraws from a bank the received cash. My company as a seller will owe the state the tax (VAT) on the sale, but because I have declared this transaction to the state the SRS will react slowly. In the meantime, I will leave my fictitious company with that debt and make a new one with other Belarusians as beneficiaries and board members for new deals. Then I return all the cash to LTD1, but keep my 10%. Usually LTD1 needs the cash for under the table salaries to its employees. As the payroll taxes are around 50% of the salaries, it's a huge gain for LTD1. LTD1 also does not loose the VAT paid to the seller as it is deductible from VAT on its sales transaction."

"So, once more - what is the benefit of this LTD1 then - it has received all its money it paid to the fake seller back, only by 10% less?" Edgar suspected he knew the answer, but still wanted a confirmation by Kaspar.

"Well, imagine that this LTD1 sells 10 tea cups for 5 euros each. It would have to pay 21% VAT on these 50 euros to the state. Instead, LTD1, through that fictitious seller, arranges an invoice that it has bought, say, an advertising service for 50 euros + 21% VAT. Therefore, LTD1 no longer has to pay VAT on those 50 euros to the state as input VAT is deducted from the output VAT. LTD1 better pays the fictitious seller 10% of the fake service bought than 21% to the state. It also thus has received cash for paying salaries with no taxes.

By paying under the table salaries and not paying payroll taxes on them, LTD1 benefit is more than 50% of this cash. Then, with such a permanent scheme this LTD1 can with lower pricing gradually push its competitors out of the market as well. The benefits are huge, it's worth the risk. Look at the penalties - if any of them are caught the company has to pay VAT, 30% fine and 18% late payment interest. If there is a criminal case – sometimes even entire taxes defrauded do not have to be refunded and the parson not often actually sits behind the bars, so there is not much to be afraid of. The sad part, of course, is that we all as taxpayers are paying for these schemes.

In addition, to disguise the reality, the fictitious service provider quickly makes for LTD1 some kind of ad for which there was the bill. The fictitious probably has a special page, where this LTD1 banner appears - everything is as if a clean transaction happened, and it is not so easy to catch them. Even if you get caught, you will still run into good lawyers and then go and fight them - they are looking under the magnifying glass at every move we make. It seems to the fictitious, especially if it formally tries to provide some form of advertising, there is nothing illegal at all – it's just a business. Then add the corporate income tax, which LTD1 will not pay for the profit from its sales, because it has no profit due to such fictitious expenses - another 25% saving," Kaspar put a cherry on the cake and enjoyed the shocking face of Edgar for a moment.

"It is interesting that with the Latvian new corporate income tax system, where the tax is not paid until the profit is distributed, these fraudsters have faced an unexpected competition, which also affects the fees for their schemes. Companies now have less risk if they pay out dividends, and thus - 25% corporate tax and with those profits pay under the table salaries. The savings on the payroll taxes will be just as large, but there is no worry about whether or not the SRS will be able to trace fictitious bills and transactions. For the country also the new system facilitates that both VAT and corporate tax is collected more, but the high payroll taxes become a bigger problem," Kaspar was enjoying his teacher's role.

"By the way, such bastards like the one who manages LTD1 are the main clients of our tax police, not those who organised the scheme and made the fake documents, because LTD1 is a real business capable of paying us. I mean – the state. After chasing the organising shadows at the best we can get them behind the bars which is complicated and not exciting. Of course, if we happen to have them on the hook, especially if they are working on both sides - the buyer and the seller at the same time, then we can go after them as well. Sometimes, when we get their computers, we can see that the wire transfers were made on behalf of both parties from the same IP address, but the cash comes back through a company in one of the neighbouring countries, often from Estonia," Kaspar continued his monologue.

Edgar listened to it all with his mouth half-open, as if reading an exciting textbook. Now he was gradually beginning to understand why there were so many awards on the wall in the office. One of them was special: "To the officer of the Order of the Three Stars Kaspar Gustavson - for an excellent service to the Fatherland, by detecting countless groups of tax evadors and recovering millions of euros of taxpayers' money in the 20-year service at the SRS Tax Police."

Edgar looked at Kaspar, if not like at a half-God, then definitely like at a guru in his field. Kaspar had recently told him that he started from the very bottom of the SRS structure as an assistant to an inspector and his main tasks were just to copy documents. However, when he relatively quickly got into the tax laws and understood the SRS's internal IT and systems, he started moving up the career ladder quite quickly, until he realized that the SRS was getting a bit boring. Then an extra sharper angle came with an offer to get involved in the Tax Police, which opened the view to additional heights - to life outside the ordinary. Now, in the analytical part of the police intelligence, he could feel almost as the ruler not only of his institution, but also of the criminal world, practically - the whole world.

Actually, he was a fairly wealthy ruler, which he used to write off to his wealthy relatives and a wide circle of friends. One day Edgar noticed a watch on Kaspar's hand that at first seemed a bit childish - with two fish between the seaweed on it, clearly original. Since Edgar has always liked watches, he also unnoticeably studied the small print on it - Jaeger Le-Coultre. Next, one doesn't have to be a genius to search on the Internet that a watch frame of such a Swiss-made masterpiece was made of white gold, the flowers on the fish were made of diamonds, but the strap was made of crocodile skin, and everything together costs over 160,000 euros. Of course, Edgar had noticed signs of bravery and a luxury lifestyle in Kaspar for some time already. However, Edgar did not doubt that Kaspar had fair reasons to be proud of what he had achieved with his hard work, and there must be some reasonable explanation about the watch as well.