CrimProf Blog

Editor: Kevin Cole
Univ. of San Diego School of Law

Friday, March 12, 2010

Ainsworth on Zappers

Richard Thompson Ainsworth (Lecturer, Boston University - School of Law) has posted Zappers - Retail VAT Fraud on SSRN. Here is the 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

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.

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I have yet to hear about this happening much in the U.S. Aside from restaurants running POS systems with SQL bringing in techs to write modified reports that show a certain percent of less cash. The bar and restaurant business sure can be shady.

Posted by: Ryan F. | Apr 24, 2010 5:45:42 PM

Ryan are one VERY NAIVE individual if you do not think this is happening much in the U.S. Trust me, it is.

Posted by: Hongster | May 27, 2010 12:09:40 PM

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