Organized tax frauds include circular frauds which are very complex in EU member states. Circular fraud is a way of the organized and systematic extraction of money from the state budget by exploiting the shortcomings of the tax system. The destination principle is based on the same tax treatment and the same market position of domestic and imported goods, but it also enables circular fraud. New member countries of the EU are struggling with circular fraud. Losses in the territory of the EU are measured in billions of euros and thus the negative effects on the budgets of those countries are growing. Tax frauds also involve countries outside Europe (UAE, Hong Kong, Russia). On the other hand, in tax havens, illegally acquired money is transferred as a part of the money laundering process. Monitoring and suppression are becoming more and more demanding because the center of gravity has moved to the domain of intangible assets due to the evolution of the internet. The regulatory bodies of the EU are trying hard to combat circular fraud and VAT abuse.
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With the entry into the European Union, i.e. the adoption of European directives (including the VAT Directive), the new member states become more exposed to the risks of financial fraud of all kinds. Organized tax frauds, including circular frauds, are taking on increasingly complex forms in the countries of the European Union, and thus the negative effects on the budgets of those countries are growing. Furthermore, tax frauds increasingly involve countries outside of Europe (e.g. UAE, Hong Kong, Russia........) and tax havens where illegally acquired money is transferred (part of the money laundering process). Like any tax, VAT is susceptible to evasion and fraud. But its credit and refund mechanism offer unique opportunities for abuse, and this has recently become an urgent problem in the European Union (Keen & Smith, 2006). After the accession of the Republic of Croatia to the European Union, the establishment of companies without employees, without assets and with minimal share capital, which is usually not located at the address of the company's headquarters, was noticed. The initial information on the basis of which the Tax Administration detected such companies was obtained based on requests for international legal assistance in the field of VAT, and on the basis of observed suspicious requests for VAT refunds. The goods that are the subject of circular fraud are, for the most part, suitable for transport, that is, they take up little space, and at the same time, are of high value. The goal of tax evaders is to transfer goods in the chain as quickly as possible while making as much profit as possible (Beebeejaun et al., 2023). According to all its characteristics, gold belongs to these goods, so for example in 2013, after the Republic of Croatia joined the European Union, the gold trade grew exponentially. According to data from the National Bureau of Statistics, 2.8 tons of gold were exported in 2014, most of which was exported to Italy, and slightly less to Slovenia. Therefore, the tax authorities were forced to participate in new trends and protect the state budget as soon as possible. In circular frauds, several companies in at least two EU member states participate in transactions. Companies trade in various goods, usually of high value, but circular frauds are increasingly common in services (trade in CO2 emissions, electricity). It is difficult to detect data on losses for the budget in the area of VAT in the matter of circular fraud. The losses of the European Union for the year 2014 related to VAT are estimated at around €135.5 billion (CIS, 2014). In the 2013 tax gap analysis study, the estimated losses of VAT revenue involving VAT fraud amounted to €193 billion (CIS, 2013).
However, the Center for Social and Economic Research (CASE) produced a Study and report on the VAT gap in the EU-28 member states of the European Union in 2016, which states a VAT gap of €522 billion. The most common frauds are related to gold, trade in secondary raw materials, mobile phones, tablet devices, gaming consoles, coffee, cereals, chocolate bars, etc. There are also so-called conduit companies that are under increased monitoring and on the Eurofisc list. In the case of circular frauds, the most significant thing is the development of risk analysis in order to prevent fraud (preventive action), given that when fraud occurs, money for the state budget is irretrievably lost, the company disappears (MTIC - Missing Trader Intra Community) and regardless of the implemented tax supervision and established tax liabilities, the amount remains unpaid and losses accumulate. Globalization has led to new paradigms and concepts of public finance management. The goal of realizing the concept is to build a free, moral and cohesive society based on universal social inclusion and a market economy (Vinšalek Stipić, 2020).