The carousel trade (arbitrage)
The article discusses a fraudulent practice known as carousel trade or arbitrage. This scheme involves two companies controlled by the same individuals, where one company sells goods to the other, allowing them to reclaim VAT from the government. The scam exploits the VAT system, leading to significant financial gains for the hidden owners of the companies.
- ▪Carousel trade involves two companies secretly controlled by the same people.
- ▪Company A sells goods to Company B and charges VAT, which Company B then reclaims upon exporting the goods.
- ▪The scam occurs when Company A disappears without paying the VAT owed, while Company B still claims it.
Opening excerpt (first ~120 words) tap to expand
The carousel trade (arbitrage) by Tyler Cowen May 25, 2026 at 1:51 am in Books Economics Law Imagine two companies which are secretly controlled by the same people. If company A imported some phones, then sold them to company B, it charged VAT on the deal. If company B then exported the phones, it reclaimed — from the government — the VAT it had paid to company A. the integrity of the VAT system depends on the two totals balancing out. The money that A pays in is equl to the money that B takes back. The scam lay in A disappearing and not handing over the money it owed, but B till claiming it. The hidden owners of the two firms therefore earned for themselves 17.5 per cent (the rate at which VAT was then charged) of the value of the shipment of the phones.
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Excerpt limited to ~120 words for fair-use compliance. The full article is at Marginal Revolution.
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