VAT fraud is not a “minor issue”
Many business owners believe that VAT fraud is always a problem “for other people”—a misconception that, in the worst case, can have existential consequences. In particular, the so-called VAT carousel scheme poses significant risks even for honest businesses. It is not uncommon for these companies to find themselves, through no fault of their own, in the crosshairs of tax authorities and tax investigators, sometimes with devastating consequences.
How does a VAT carousel scheme work?
The basic principle of a VAT carousel is as simple as it is insidious: In a cross-border or domestic supply chain, VAT is evaded at one level when a participant—the so-called “missing trader”—fails to remit the collected VAT to the tax authorities. The goods are moved multiple times, often exported, while input tax credits are claimed at every stage. In the end, one party disappears—leaving the tax authorities to bear the brunt of the loss.
The problem: Innocent businesses are held liable
Meanwhile, tax authorities and law enforcement agencies are taking an increasingly repressive approach: Anyone—whether as a supplier or a buyer—who unknowingly collaborates with a fraudulent party can quickly find themselves in the investigators’ crosshairs. In practice, an objective connection within the supply chain is often enough to face serious consequences:
- Disallowance of input tax credits
- Additional VAT assessments
- Liability notices against the company
- Personal criminal tax proceedings against management
- Damage to the company’s image and reputation that poses a lasting threat
Even if a company operates exclusively in good faith, case law (e.g., based on rulings by the Federal Fiscal Court and the European Court of Justice) increasingly holds it jointly liable: Anyone who overlooks certain warning signs or fails to implement adequate audit and documentation measures runs the risk of being treated as part of the carousel scheme and sanctioned.
The heightened duty of care for business owners
This risk is exacerbated by the ever-increasing requirements for what is known as the “due diligence of a prudent businessman.” Entrepreneurs are now required not only to carefully select their own business partners but also to review their payment and business practices, as well as to identify and document specific indications of irregularities. If appropriate checks or compliance measures are lacking, the right to deduct input tax is jeopardized, and a criminal tax investigation is virtually inevitable.
Our Services – Your Protection Against Liability and Penalties
As a specialized team of attorneys specializing in tax law and criminal tax law, we support you in effectively protecting your company from the looming risks of a VAT carousel scheme. Our clients benefit in particular from the following consulting services:
1. Analysis and evaluation of existing business relationships
Identification of risk factors and vulnerabilities, targeted review of suppliers and customers.
2. Establishment and optimization of compliance structures
Development and implementation of internal control systems, checklists, and monitoring mechanisms to ensure your business processes are legally compliant.
3. Training and awareness-raising for your employees
Knowledge transfer regarding relevant indicators to enable the timely recognition of early warning signs within the supply chain.
4. Support during routine and special tax audits
Professional support in handling critical inquiries from tax authorities, communicating with government agencies, and representing your interests before investigative authorities.
5. Effective defense in initiated criminal tax proceedings
Development of a customized defense strategy, negotiation with tax investigators, and representation in criminal and tax proceedings—including measures to prevent reputational damage from public exposure.
Acting early is your decisive advantage
Experience shows: The sooner you seek legal advice and take preventive measures, the more effectively you can avert serious financial and personal consequences. Therefore, do not hesitate to contact a specialized law firm at an early stage—especially if
- you have doubts about the integrity of a business partner,
- your company has received inquiries or audit notices from the tax authorities,
- you feel uncertain about your internal control processes,
- or you are already facing an investigation.
Client protection at the highest level
As specialized attorneys in tax and criminal law with many years of practical experience, we are here to assist you with all matters related to VAT carousel schemes and tax liability risks. We will discreetly and thoroughly review your specific situation and develop a tailored defense or prevention strategy.
Protect yourself and your business—before it’s too late.
The statements represent initial information that was current for the law applicable in Germany at the time of initial publication. The legal situation may have changed since then. Furthermore, the information provided cannot replace individual advice on a specific matter. Please contact us for this purpose.