Issue link: https://maltatoday.uberflip.com/i/1516098
6 maltatoday | SUNDAY • 18 FEBRUARY 2024 NEWS TWO companies falling under the Falzon Group appear in a 50-page Italian court document as suppliers in a VAT carousel fraud scheme. The court document details an arrest warrant filed last year against two Italian men: Ema- nuele Pasquali and Danilo An- garella. The two are accused of bank- rupting Italian company Virgo Petroli Srl through a VAT car- ousel fraud scheme whereby the company evaded €15.2 million in VAT. According to the document, Falzon group companies San Lu- cian Oil Ltd and Fuel Energy Ltd were 'participants' in the VAT carousel by entering into an agreement that saw them pro- vide petroleum products to Ital- ian companies and holding the VAT amount that should have been paid to Italian authorities. Carousel fraud is a form of VAT fraud that exploits the EU's VAT rules for cross-border transac- tions. It involves a scheme where goods are traded between com- panies, each adding value-added tax (VAT) but at least one com- pany in the chain vanishes with- out remitting the collected VAT to tax authorities. Falzon Group are not facing ju- dicial proceedings and have de- nied any wrongdoing. The scheme outlined by the Italian authorities appears to have been devised to fraudulent- ly claim an Italian VAT refund through a shell company that never paid VAT and eventually went bankrupt. Detection of the scheme was rendered difficult due to an unusual contractual agreement and fictitious compa- nies created to layer the wrong- doing. In this case, Fuel Energy Ltd would sell petrol to an Italian company as an EU intra-com- munity transfer (without VAT). But in Italy, the company would resell the materials to another company, but pay the VAT-in- clusive amount to Fuel Energy Ltd, instead of Italian authorities. This was made possible through a credit assignment agreement. According to the court doc- ument, two iterations of this "fraudulent supply chain" exist- ed between 2016 and 2018. In total, Italian companies evaded €27.5 million in VAT through these two supply chains. These amounts were transferred to the Maltese bank accounts of Fuel Energy Ltd. One of the supply chains, which involved the bank- rupt Virgo Petroli, saw Falzon Group's companies enter into contractual agreements with Virgo Petroli and another Italian company called Leonis Group Spa. Danilo Angarella, accused of bankrupting Virgo Petroli, was also a shareholder in Leonis Group Spa. The document says Leonis Group, formerly KB Group Spa, until September 2016 had its ownership split between An- garella and Operation Dirty Oil suspect Gordon Debono, through his Maltese company KB Investments Ltd. Debono eventually transferred his shares in the company to Merak Ltd in September 2016, according to the document. Meanwhile, the now-bank- rupt Virgo Petroli served as the 'missing trader' in the carousel scheme. Such companies in car- ousel fraud carry out intra-com- munity purchases in significant volumes within a short period of time, and eventually fail to submit tax returns or do not pay VAT. The carousel The carousel scheme relied on a credit assignment agree- ment between the companies involved. Judicial police summa- rised the carousel operations as follows: • Virgo Petroli, the 'missing trader', is a raw materials suppli- er to Leonis Group Spa. • Fuel Energy Ltd, owned by Falzon Group, supplies 'on pa- per' the raw materials to Virgo Petroli, to be resold to Leonis Group Spa. • Virgo Petroli shifts its cred- it from Leonis Group to Falzon Group to ensure its commercial responsibilities. If Virgo Petroli fails to pay, Falzon Group can directly pursue Leonis Spa. • Leonis Group Spa pays the amount owed to Virgo Petroli, inclusive of VAT, to Fuel Energy Ltd directly. The payment does not correspond to the amount supplied by Fuel Energy Ltd to Virgo Petroli, but is instead based on the credit assignment clause in the three-party agree- ment, and thus corresponds to the credit claimed by Virgo Petroli Srl towards Leonis Group Spa, inclusive of VAT. • Leonis Group goes on to re- sell the raw materials to other oil companies in Italy, and reclaims the VAT 'paid' to Virgo Petroli, which instead goes to Fuel En- ergy Ltd. However, Virgo Petroli never sent the VAT charged to the Italian treasury, resulting in a fraudulent reclaiming of VAT that was never paid. In effect, Virgo Petroli was set up as a mere intermediary enti- ty onto which the VAT liability falls. The credit claimed includes a de facto "surcharge" paid to the Maltese supplier in the form of a VAT payment that is never paid to Italian authorities. "In the end, Virgo Petroli (along with other companies in- volved in the fraudulent scheme investigated by the Udine Fi- nancial Police) was "sacrificed," meaning it was destined for bankruptcy because no benefit (...) was gained from the simulat- ed transactions of the bankrupt company. There was no benefit obtained, not even temporarily, from the fictitious commercial operations, as all the funds from the formal resale of the petrole- um product were entirely trans- ferred to the current accounts of the foreign supplier company by the buyer, Leonis Group Spa, as per the Three Party Agreement," the court documents read. This carousel fraud scheme was active in 2017 and during the first months of 2018. Prior to this scheme was another sup- ply chain involving San Lucian Oil Company Ltd on the part of Falzon Group, and a different 'missing trader' company called Best Petrol Company Srl. Le- onis Group was already present in this set-up, buying petroleum products from San Lucian Oil Ltd at "below-cost", investiga- Italian companies evaded €27.5 million Danilo Angarella (left) and Gordon Debono NICOLE MEILAK nmeilak@mediatoday.com.mt