A large Italian grocery chain and its directors are under investigation for fraud and an employment tax dispute.
We talk from time to time about employment taxes and the necessity of correctly distinguishing between contract and employed labor. In the U.S., the Internal Revenue Service (IRS) makes it a priority to monitor for employee misclassification that would undercount FTE workers and lead to collection and turnover of reduced withholding taxes, among other impacts.
In Italy, local law enforcement confiscated approximately $69 million from an Italian department of the grocery chain Carrefour, which is a French chain that has approximately 1,500 stores in Italy. The Italian arm is called “GS Spa.” Two former directors of Carrefour have been placed under house arrest.
Value Added Tax (VAT) fraud is among the allegations laid against the Italian grocery group. VAT can be a basis for several types of fraud, some complex, some less so. VAT fraud can occur when owners or operators withhold VAT without paying it over, or it can occur across borders via extensive distribution chains, shell companies, and sketchy accounting methods.
Another French retailer, Auchan, is also alleged to have participated in tax evasion by issuing false invoices. Authorities allege a buyer who participated in the tax fraud received trips, electric bicycles, and other merch for his efforts.
In this instance, Italian authorities allege issues with outsourcing, cargo transport, and shell companies arranged to avoid employment and municipal taxes. Prosecutors refer to these sell companies as “false cooperatives,” noting "GS spa's fraudulent conduct has been going on for many years and has resulted not only in the systematic exploitation of workers but also in considerable damage to the inland revenue.”
Both Auchan and Carrefour deny any wrongdoing. Carrefour notes it is fully cooperating with authorities and that it is concerned about the allegations at hand. Carrefour has also launched an internal investigation.
Although arrests have already been made and allegations laid, there is a long investigation ahead. As in the States, it is likely Carrefour and Auchan are making good use of their legal counsel. If prosecutorial strategies align on both sides of the pond, looking ahead, we might expect the investigation will eventually turn to settlement and payment of a significant fine. We will keep you posted.
Concerned about a civil or criminal tax audit? Our tax attorneys can help
When you receive notice of an IRS investigation or audit, experienced legal guidance is important. With offices in Cleveland and Chicago, the legal group at Robert J. Fedor, Esq., LLC provides strategic, discrete guidance on criminal tax matters, offshore tax concerns and business bankruptcy. Contact us today or call 800-579-0997.
