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VAT Carousel Fraud Case Law

Updated: Aug 9, 2023

Value-added tax (VAT) is characterised, on the one hand, by the fact that it is a consumption tax generally levied on all transactions carried out by taxpayers in the course of their economic activities, with the sole purpose of taxing the final consumer. On the other hand, by the neutrality principle from which it follows that there should also be a right to deduct input tax.

It appears that the right of deduction can always be applied in order to ensure the neutral taxation of VAT. However, there are nevertheless limits to this right. For instance, the European Court of Justice has ruled that in cases of fraud or abuse of law, there is no entitlement to deduction, exemption or refund of VAT. This is different only in cases in which the taxpayer did not know or should not have known that the case involved fraud or abuse. It is therefore very important to be aware of when abuse of law occurs, at least in terms of refusing the right to deduct, exempt or refund VAT. This blog therefore briefly sets out the relevant case law of the European Court of Justice.


There is no right to input tax deduction in case of an abuse of law. Whether or not there is abuse is determined firstly by whether the transactions cause a tax advantage to be granted - contrary to the purpose of national and European provisions. In addition, there must be a set of objective factors showing that the essential purpose of the transactions in question is to obtain a tax advantage.1


The right to deduct input VAT may be refused if it can be established on the basis of objective elements that the taxpayer knew or should have known that by his purchase he participated in a transaction that is part of VAT fraud.2


The tax authorities of the Member State of supply may not require a supplier who has acted in good faith and presented evidence establishing his eligibility to the zero rate for an intraCommunity supply of goods to repay the VAT due on those goods where that evidence turns out to be false, without, however, proving the supplier's involvement in the tax fraud, provided that he has done everything reasonably within his power to ensure that the intra-Community supply he carries out does not involve him in such fraud.3


If, although an intra-Community supply of goods took place, the supplier, at the time of the supply, prohibited the identification of the real acquirer in order to enable him to evade VAT, the Member State of departure of the ICL may refuse to grant the zero rate.4


Application of the zero rate may be refused provided it is established, on the basis of objective elements, that the vendor failed to comply with his duty to provide evidence or that he knew or ought to have known that the transaction he was carrying out was part of a fraud committed by the purchaser and that he did not take all reasonable measures available to him to prevent himself from becoming involved in that fraud. Application of the zero rate cannot be refused on the sole ground that, after the supply of the good, the tax authorities of another Member State deleted the customer's VAT identification number with retroactive effect - prior to the supply.5


It is within the discretion of the national authorities and courts to refuse a taxable person the right to deduct, exempt or reimburse VAT in respect of an intra-Community supply, even where national law makes no provision to that end, where it is established, on the basis of objective evidence, that that taxable person knew or should have known that he was taking part in VAT fraud in relation to a chain of supplies with the transaction in respect of which that right is claimed. A taxable person who knew or should have known that the transaction in respect of which he claims the right to deduct, exempt or refund VAT is made, participated in VAT fraud in the context of a chain of supplies, may be refused those rights, notwithstanding the fact that fraud was committed in a Member State other than the Member State in which those rights are claimed and the taxable person has complied with the formal conditions attached to those rights in the latter Member State by national law.6

Do you have questions about abuse of rights or other questions regarding the right to deduct input VAT, exemptions or refunds? Feel free to contact one of our lawyers.

1 HvJ 21 februari 2006, nr. C-255/02 (Halifax).

2 HvJ 6 juli 2006, nr. C-439/04 (Kittel).

3 HvJ 27 september 2007, nr. C-409/04 (Teleos).

4 HvJ 7 december 2010, nr. C-285/09 (R).

5 HvJ 6 september 2012, nr. C-279/11 (Mecsek-Gabona).

6 HvJ 18 december 2014, nr. C-131/13 (Italmoda).


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