© 2025 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
B2. VAT fraud in general
Proof of fraud
- Evidence procedures matter for national law
"[44] Since EU law does not provide for rules concerning the procedures for taking evidence in matters of VAT fraud, these objective elements must be established by the tax authorities in accordance with the rules of evidence laid down by national law. However, these rules must not undermine the effectiveness of EU law (Order of 3 September 2020, Vikingo Fővállalkozó, C-610/19, EU:C:2020:673, paragraph 59 and the case law cited)." (Granulines Invest C-270/24)
- Tax authority bears the burden of precisely characterising the fraud, proving the fraud and proving participation
"[27] According to this case law, the tax authority bears the burden, firstly, of precisely characterizing the constituent elements of the fraud and of providing evidence of the fraudulent conduct and, secondly, of establishing that the taxable person actively participated in that fraud or that he knew or should have known that the transaction invoked to establish that right was involved in that fraud. It is for the national courts to verify that the tax authorities have provided sufficient proof of this (see, to that effect, judgment of 1 December 2022, Aquila Part Prod Com, C-512/21, EU:C:2022:950, paragraph 36)." (Pegazus Busz C-262/24)
"[54] It is apparent from the case-law referred to in paragraphs 35 to 38 above that where a tax authority intends to refuse a taxable person the benefit of the right to deduct VAT it must establish to the requisite legal standard, in accordance with the rules of evidence laid down in national law and without undermining the effectiveness of EU law, both the objective evidence establishing the existence of a VAT fraud per se and the objective evidence establishing that the taxable person committed that fraud or knew, or ought to have known, that the acquisition of goods or services relied on as a basis for that right was connected with the fraud in question." (Global Ink Trade C-537/22)
- Not necessarily required to establish all operators in the fraud and their conduct
"[57] It is for the tax authority, first, to provide an accurate description of the constituent elements of the fraud and to adduce evidence of the fraudulent conduct and, secondly, to establish that the taxable person actively participated in that fraud or knew, or ought to have known, that the acquisition of goods or services relied on as a basis for that right was connected with that fraud. However, establishing the existence of the fraud and of the taxable person’s participation in that fraud does not necessarily entail identifying all the operators involved in the fraud and their respective conduct." (Global Ink Trade C-537/22)
- Parties must have knowledge and be able to debate in adversarial manner factual and legal elements
""[28] However, in order to satisfy the requirements of the right to a fair trial, it is important that the parties have knowledge and be able to debate in an adversarial manner before the court seised both the factual and legal elements which are decisive for the outcome of the proceedings, including evidence of the taxable person's participation in VAT fraud alleged by the tax authorities (judgment of 1 December 2022, Aquila Part Prod Com, C-512/21, EU:C:2022:950, paragraphs 60 and 61).
[29] Consequently, the answer to the first question, under c), is that the right to a fair trial, enshrined in Article 47 of the Charter of Fundamental Rights, must be interpreted as meaning that its respect requires that the taxable person be aware of and be able to argue in an adversarial manner, before the national court seised, the evidence on which the tax authorities rely to consider that this taxable person is involved in VAT fraud." (Pegazus Busz C-262/24)
- Objective evidence to the requisite legal standard, not assumptions
"[34] Since the refusal of the right of deduction is an exception to the application of the fundamental principle constituted by that right, it is incumbent on the tax authorities to establish, to the requisite legal standard, the objective evidence from which it may be concluded that the taxable person committed VAT fraud or knew or ought to have known that the transaction relied on as a basis for the right of deduction was connected with such a fraud. It is for the national courts subsequently to determine whether the tax authorities concerned have established the existence of such objective evidence (judgment of 25 May 2023, Dyrektor Izby Administracji Skarbowej w Warszawie (VAT – Fictitious acquisition), C‑114/22, EU:C:2023:430, paragraph 43 and the case-law cited).
...
[40] Entitlement to the right of deduction can be refused only if the facts relied on to demonstrate such fraud or abuse have been established to the requisite legal standard, otherwise than by assumptions (see, to that effect, judgment of 11 November 2021, Ferimet, C‑281/20, EU:C:2021:910, paragraph 52 and the case-law cited). (Feudi C-341/22)
"[50] In addition, according to the settled case-law of the Court, since the refusal of the right of deduction is an exception to the application of the fundamental principle constituted by that right, it is incumbent on the tax authorities to establish, to the requisite legal standard, the objective evidence from which it may be concluded that the taxable person committed VAT fraud or knew or should have known that the transaction relied on as a basis for the right of deduction was connected with such a fraud. It is for the national courts subsequently to determine whether the tax authorities concerned have established the existence of such objective evidence (order of 3 September 2020, VikingoFővállalkozóC‑610/19, EU:C:2020:673, paragraph 57 and the case-law cited).
...
[52]...Entitlement to the right of deduction can be refused only if those facts have been established to the requisite legal standard, otherwise than by assumptions (see, to that effect, order of 3 September 2020, Crewprint, C‑611/19, not published, EU:C:2020:674, paragraph 45)." (Ferimet C-281/20)
- Assumption and presumptions prohibited
"[55] That evidential requirement prohibits, irrespective of the type of fraud or the conduct under examination, the use of assumptions or presumptions which, by reversing the burden of proof, would have the effect of undermining the fundamental principle of the common system of VAT constituted by the right of deduction and, therefore, of impairing the effectiveness of EU law (judgment of 1 December 2022, Aquila Part Prod Com, C‑512/21, EU:C:2022:950, paragraph 34)." (Global Ink Trade C-537/22)
- No risk of fraud re export zero-rating if goods have left the territory
"[45] Moreover, the Court has already held that, in circumstances where the conditions for the export exemption laid down in Article 146(1)(b) of the VAT Directive, in particular, the requirement that the goods concerned leave the customs territory of the European Union, are satisfied, no liability to pay VAT arises in respect of such a supply and, in those circumstances, there no longer exists, in principle, any risk of tax evasion or loss of tax which could justify the transaction concerned being taxed (judgment of 17 December 2020, BAKATI PLUS, C‑656/19, EU:C:2020:1045, paragraph 82 and the case-law cited)." (W C-602/24)
- Circular invoice chain strong evidence of fraud but not sufficient by itself
"[56] Accordingly, although the existence of a circular invoicing chain is strong evidence of the existence of fraud, which must be taken into account in the overall assessment of all the evidence and all the factual circumstances of the case, there are no grounds for accepting that the tax authority may, for the purpose of proving the existence of carousel fraud, merely establish that the transaction in question forms part of a circular invoicing chain (see, to that effect, judgment of 1 December 2022, Aquila Part Prod Com, C‑512/21, EU:C:2022:950, paragraph 35)." (Global Ink Trade C-537/22)
- Fraudulent acts outside territory may mean fraud within territory
"[37] Since the fact that the fraudulent acts were committed in a non-Member State is not such as to be sufficient to rule out the existence of any tax evasion committed to the detriment of the common system of VAT, it is for the national court to verify that the transactions at issue in the main proceedings were not part of any such fraud and, if they were, to assess whether the taxable person knew or ought to have known that that was the case." (Unitel C-653/18)
General effect of fraud
- Rules of EU law cannot be relied on fraudulently or improperly
"[45] Furthermore, as the Court has repeatedly pointed out, the prevention of tax evasion, tax avoidance and abuse is an objective recognised and encouraged by Directive 2006/112. In this respect, the Court has held that individuals cannot fraudulently or improperly avail themselves of the rules of EU law and that, therefore, it is for national authorities and courts to refuse the right of deduction if it is established, on the basis of objective evidence, that this right is being relied on for fraudulent or abusive ends (see, to that effect, judgments of 6 July 2006, Kittel and Recolta Recycling, C‑439/04 and C‑440/04, EU:C:2006:446, paragraphs 54 and 55; of 16 October 2019, Glencore Agriculture Hungary, C‑189/18, EU:C:2019:861, paragraph 34 and the case-law cited; and order of 14 April 2021, Finanzamt Wilmersdorf, C‑108/20, EU:C:2021:266, paragraph 21)." (Ferimet C-281/20)
- Criminal behaviour does not, of itself, entail a different VAT treatment
"[50] In that context, as the referring court observed, it is settled case-law that the principle of fiscal neutrality prevents any general distinction between lawful and unlawful transactions. Consequently, the mere fact that conduct amounts to an offence does not entail exemption from tax; that exemption applies only in specific circumstances where, owing to the special characteristics of certain goods or services, any competition between a lawful economic sector and an unlawful sector is precluded (see, inter alia, Case C-158/98 Coffeeshop ‘Siberië’ [1999] ECR I-3971, paragraphs 14 and 21, and Case C‑455/98 Salumets and Others [2000] ECR I‑4993, paragraph 19). It is common ground, however, that that is not the case with either the computer components or the vehicles at issue in the main proceedings." (Kittel C-439/04)
- General assumption of fraud cannot justify measure compromising objectives of Directive
"[41] Furthermore, the Court has already held that a general presumption of fraud and abuse cannot justify a fiscal measure which compromises the objectives of a directive (see, to that effect, judgment of 7 September 2017, Eqiom and Enka, C‑6/16, EU:C:2017:641, paragraph 31 and the case-law cited). In the same way, it cannot be accepted that such a presumption, even a rebuttable presumption, leads to the right to deduct input VAT paid being refused for reasons unconnected to the finding of a fraudulent or abusive reliance on that right." (Feudi C-341/22)
Proportionality of anti-fraud measures
- Prevention of fraud can justify stringent requirements on vendor
"[47] According to settled case-law, the prevention of tax evasion, avoidance and abuse is an objective recognised and encouraged by Directive 2006/112 (see Joined Cases C-487/01 and C-7/02 Gemeente Leusden and Holin Groep [2004] ECR I-5337, paragraph 76; R., paragraph 36; and Joined Cases C-80/11 and C-142/11 Mahagében and Dávid [2012] ECR, paragraph 41 and the case-law cited) which can, in certain circumstances, justify stringent requirements as regards vendors’ obligations (Teleos and Others, paragraphs 58 and 61).
[48] Accordingly, it is not contrary to European Union law to require an operator to act in good faith and to take every step which could reasonably be asked of it to satisfy itself that the transaction which it is carrying out does not result in its participation in tax fraud (Teleos and Others, paragraph 65, and Mahagében and Dávid, paragraph 54)." (Mecsek-Gabona C-273/11)
- Anti-fraud provisions must cause the least possible detriment to the objectives/principles of the legislation
"[19] In particular, as regards the principle of proportionality, the Court has already held that, in accordance with that principle, the Member States must employ means which, whilst enabling them effectively to attain the objectives pursued by their domestic laws, cause the least possible detriment to the objectives and principles laid down by the relevant Community legislation (see Molenheide and Others, paragraph 46, and Case C‑409/04 Teleos and Others [2007] ECR I-0000, paragraph 52).
[20] Therefore, whilst it is legitimate for the measures adopted by the Member State to seek to preserve the rights of the public exchequer as effectively as possible, such measures must not go further than is necessary for that purpose (see, in particular, Molenheide and Others, paragraph 47, and Federation of Technological Industriesand Others, paragraph 30)." (Netto Supermarket C-271/06)
- Must have as little effect as possible on the objectives and principles of the Directive
"[33] It is, however, apparent from the case-law that measures to prevent tax evasion or avoidance may not, in principle, derogate from the rules relating to the taxable amount except within the limits strictly necessary for achieving that specific aim. They must have as little effect as possible on the objectives and principles of the VAT Directive and may not therefore be used in such a way that they would have the effect of undermining the neutrality of VAT (judgments of 26 January 2012, Kraft Foods Polska, C‑588/10, EU:C:2012:40, paragraph 28; of 15 May 2014, Almos Agrárkülkereskedelmi, C‑337/13, EU:C:2014:328, paragraph 38; and of 12 October 2017, Lombard Ingatlan Lízing, C‑404/16, EU:C:2017:759, paragraph 43)." (Tratave C-672/17)
- Sharing of risk of fraud between supplier and tax authorities must be consistent with proportionality
"[22] This is why the objective of preventing tax evasion referred to in Article 15 of the Sixth Directive sometimes justifies stringent requirements as regards suppliers’ obligations. However, any sharing of the risk between the supplier and the tax authorities, following fraud committed by a third party, must be compatible with the principle of proportionality (Teleos and Others, paragraph 58)." (Netto Supermarket C-271/06)
- Clearly disproportionate to hold supplier liable for fraudulent acts over which it had no influence
"[23] That will not be the case if a tax regime imposes the entire responsibility for the payment of VAT on suppliers, regardless of whether or not they were involved in the fraud committed by the purchaser (see, to that effect, Teleos and Others, paragraph 58). As the Advocate General has pointed out in point 45 of his Opinion, it would clearly be disproportionate to hold a taxable person liable for the shortfall in tax caused by fraudulent acts of third parties over which he has no influence whatsoever." (Netto Supermarket C-271/06)
- Not disproportionate to require supplier to take every step reasonably required to be satisfied not participating in fraud
"[24] On the other hand, as the Court has already held, it is not contrary to Community law to require the supplier to take every step which could reasonably be required of him to satisfy himself that the transaction which he is effecting does not result in his participation in tax evasion (see Teleos and Others, paragraph 65, and the case-law cited there)." (Netto Supermarket C-271/06)
- Not permissible to make right to deduct conditional on submission of express request or upon supplies commencing within 1 year
" The answer to the question from the national court must therefore be that Article 17 of the Sixth Directive precludes national legislation which makes the exercise of the right to deduct VAT paid by a taxable person liable thereto before he starts regularly carrying out taxable transactions conditional upon the fulfilment of certain requirements such as the submission of an express request to that effect before the tax concerned becomes due and compliance with a time-limit of one year between that submission and the actual commencement of taxable transactions, and which penalises infringement of those requirements by forfeiture of the right to deduct or deferment of the exercise of that right until the time at which taxable transactions actually begin to be carried out on a regular basis." (Gabalfrisa C-110/98)
- Refusal of registration must be based on sound evidence that it is probable VAT registration will be used fraudulently
"[34] In order to be considered proportionate to the objective of preventing evasion, a refusal to identify a taxable person by an individual number must be based on sound evidence giving objective grounds for considering that it is probable that the VAT identification number assigned to that taxable person will be used fraudulently. Such a decision must be based on an overall assessment of all the circumstances of the case and of the evidence gathered when checking the information provided by the undertaking concerned." (Ablessio C-527/11)
- Adjustment of VAT improperly invoiced cannot depend on good faith where risk of loss wholly eliminated
"[60] It must be noted that the requirement that the issuer of the invoice should demonstrate his good faith when he has in sufficient time wholly eliminated any risk of lower tax yields is not necessary to ensure the collection of VAT or to prevent tax evasion (see, to this effect, Case C-361/96 Grandes Sources d'Eaux Minérales Françaises v Bundesamt für Finanzen [1998] ECR I-3495, paragraphs 29 and 30).
[61] By contrast, as was the case in Genius Holding, where the risk of any loss of tax revenues has not been wholly eliminated, the Member States may make the possibility of adjusting VAT which has been improperly invoiced conditional upon the issuer of the relevant invoice having acted in good faith. As the national court has stated, if it transpires that it is no longer possible to cancel a deduction granted in respect of the addressee of the invoice and the issuer of the invoice has not acted in good faith, he may be held responsible for the shortfall in tax revenues in order to ensure tax neutrality." (Schmeink & Cofreth C-454/98)
Supervision
Effect of fraud on innocent parties
- Restricting VAT grouping to supervised entities proportionate
"[38] The second paragraph of Article 11 of the VAT Directive also permits Member States to adopt any measures needed to prevent tax evasion or avoidance through the use of the first paragraph of the article. Such measures may, however, be taken only in compliance with European Union law. Thus, with that reservation, it is permissible for Member States to restrict the application of the scheme provided for under Article 11 to combat tax evasion or avoidance.
[39] In the present case, as has been stated in paragraph 26 of this judgment, the Kingdom of Sweden submits that, in order to prevent tax evasion and avoidance, in accordance with the second paragraph of Article 11 of the VAT Directive, it decided to restrict the possibility of forming a VAT group to those undertakings which are placed, directly or indirectly, under the supervision of the Finance Inspectorate and which are therefore covered by a public monitoring system. The Commission has failed to show convincingly that, in the light of the need to combat tax evasion and avoidance, that measure is not well founded."(Commission v. Sweden C-480/10)
- Innocent party entitled to rely on falsified proof of export to claim zero-rating
"[27] It follows that a supplier must be able to rely on the lawfulness of the transaction that he carries out without risking the loss of his right to exemption from VAT, if, as in the case in the main proceedings, he is in no position to recognise – even by exercising due commercial care – that the conditions for the exemption were in fact not met, because the export proofs provided by the purchaser had been forged." (Netto Supermarket C-271/06)
- Different position to customs law
"[28] Moreover, it must be added that, contrary to what has been submitted by the German Government, the case-law of the Court in the field of customs law – according to which an operator who cannot provide evidence that the conditions necessary for the grant of remission from export or import duties are satisfied must bear the consequences arising from that inability, despite having acted in good faith – cannot be relied on in a situation such as that in the case in the main proceedings, in order to call in question the foregoing considerations. As the Advocate General has noted in point 53 of his Opinion, that case-law cannot be transposed to the specific situation of a taxable person under the common system of VAT put in place by the Sixth Directive, because of the differences in structure, object and purpose between such a system and the Community regime on the levying of customs duties." (Netto Supermarket C-271/06)
"[54] The United Kingdom and Italian Governments submit in that regard that, in the main proceedings, the case-law according to which it is neither disproportionate nor contrary to the general principles of law which the Court is required to uphold to require an importer who has acted in good faith to pay customs duties payable on the importation of goods in respect of which the exporter has committed a customs offence, where the importer has played no part in that offence, is applicable to this case (see Joined Cases C‑153/94 and C‑204/94 Faroe Seafood and Others [1996] ECR I‑2465, paragraph 114, and Case C‑97/95 Pascoal & Filhos [1997] ECR I‑4209, paragraph 61).
[55] That argument cannot be accepted.
[56] As Teleos and Others and the Commission correctly maintain and as the Advocate General observed in points 78 to 82 of her Opinion, the application of customs duties to imports from outside the European Union and the imposition of VAT on intra-Community acquisitions are not comparable transactions.
[57] The regime applying to intra-Community trade lays down the division of powers in tax matters in the internal market and permits the tax authorities to resort to both the supplier and the purchaser to obtain payment of the VAT, whereas, under the common customs regime, duties are recoverable only from the importer. It follows that the case-law cited in paragraph 54 of the present judgment is not applicable to the case which is before the national court." (Teleos C-409/04)