Tax investigators are going undercover in their fight against VAT-dodging software being used by dishonest entrepreneurs, Times of Malta has learnt.

This newspaper reported yesterday that unscrupulous business operators were using software to delete records of sales in a scam that is believed to be costing the public coffers millions of euros in unpaid VAT.

It has been confirmed that some businesses are using a type of software that allows them to manipulate sales records through the digital point of sale system.

Government sources said covert operations were ordered in relation to companies suspected of erasing sales through a software adapted to tamper with digital cash registers.

Details of the businesses being investigated and the methods being employed by the authorities are a closely-guarded secret in order not to compromise the ongoing efforts to curb the abuse.

However, information which reached Times of Malta indicates that the operations have spanned several months and involve collaboration between different government departments.

“We are not taking this abuse lying down,” the sources said.

They pointed out that the investigations taking place now were not unprecedented. A few years back, the authorities had nailed a chain of restaurants that were using similar software to manipulate their sales records.

The investigations in progress will include forensic testing of individual digital cash registers.

Tax sources, however, noted that it was wide-ranging investigations that offered the best chance of getting any evidence of wrongdoing.

There was even a case of a computer being burnt before it could be analysed

“One option is to conduct forensic audits of companies and their digital systems. However, not only are these very difficult to do, since available resources are limited, but also they do not always come up with the evidence necessary to take action,” the sources added.

It was not simply a matter of finding a copy of the contentious software on a CD at a suspect’s office, they remarked.

Furthermore, it appeared that some companies had already destroyed the evidence before it could be compiled. “There was even a case of a computer being burnt before it could be analysed,” the sources said.

“Traditional methods” were being employed in the investigations, though the sources would not elaborate.

The sources continued that, just like the police did when tracking drug traffickers, in the VAT scam the investigators were after the suppliers rather than those simply using the software. At least one supplier is known to have already been apprehended.

In a bid to catch more suppliers, the authorities were prepared to “go softer” on companies caught in the act once they provided information on where the software came from and who had instructed them on its use. This, they said, was in line with what investigators in other countries were doing.

“When we liaised with our counterparts abroad we found that they were also grappling with this problem.

“One thing they are doing is finding ways to stop this at the source and we are doing the same,” the sources said.

To catch a tax dodger

According to a veteran tax investigator, the best way is by conducting a capital accretion test: an exercise in which assets are compared to declared earnings. “This is done by comparing the assets someone had, say 10 years ago, to what they have today,” the sources said.

Comparing a suspect’s declared earnings to their expenditure is a time-consuming but telling exercise. “It is useful in cases where the wealth obviously doesn’t match the profits declared,” they said.

VAT cheat software

A career VAT investigator told the Times of Malta the suspect software was particularly useful for business owners whose staff could not simply be told not to register all sales.

“In small, family-run businesses it’s easy to not declare sales; you have your wife or son at the cash and they don’t punch in a sale,” he said. In larger enterprises, this was practically impossible to do.

“They can’t instruct staff not to register a sale for they’ll get caught in no time. That is where this technology comes in. It allows for the same under-declaring we see in smaller businesses to be done by big operators too – resulting in huge illegal ‘savings’,” the sources said.

ivan.martin@timesofmalta.com