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Lenders and borrowers in VAT arbitrage in lending money laundering [Jersey NRA red flag]


Jersey’s NRA highlights the following.

VAT arbitrage in lending money laundering is a scheme that involves exploiting the differences in VAT rates between countries or regions to obtain illicit profits.

For example,

  • A lender may lend money to a borrower in a low-VAT jurisdiction and charge interest subject to VAT.
  • The borrower may use the money to purchase goods or services in a high-VAT jurisdiction and claim a VAT refund.
  • The lender and the borrower may share the difference between the VAT paid and the VAT refunded, thus laundering the money.

The Luxembourg CSSF regulator highlights this here.

This type of scheme may be detected by some indicators, such as:

  • The use of shell companies or offshore entities to facilitate lending transactions.
  • The lack of economic substance or business rationale for the lending transactions.
  • The use of complex or unusual contractual arrangements that may create tax arbitrage or tax refund opportunities.
  • The involvement of high-risk jurisdictions or sectors known for VAT fraud or evasion.



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