Taxpayers can be held responsible for VAT fraud in their supply chain
Taxpayers can be held responsible for VAT fraud in their supply chain
A ruling by the European Court of Human Rights in the ‘Italmoda’ case is an important warning for taxpayers. The Court confirmed that businesses who become involved in VAT fraud, whether knowingly or unknowingly, can forfeit their right to deduct VAT or apply the 0% rate. Italmoda’s complaint was dismissed, making it clear that VAT fraud in the supply chain can be tackled strictly and that taxpayers bear responsibility for VAT fraud in their supply chain. Refusing the right to deduct VAT and apply the zero rate are not considered a penalty.
For taxpayers active in international trade, distribution, or wholesale, this risk is particularly relevant. The VAT chain is often complex and cross-border, increasing the risk of fraud. A mistake or lack of due diligence at one link can affect the entire chain. Even when a business acts in good faith, the absence of sufficient checks and safeguards can result in the loss of VAT recovery.
If you have questions about VAT due diligence in your supply chain and how to prevent being involved in VAT fraud, do not hesitate to contact one of our advisors.
Customer can be held liable for supplier’s VAT
The judgment of the Court of Justice on July 10, 2025, in the Konreo case underscores this risk. In this case, it was ruled that a customer can be held liable for unpaid VAT by its supplier and, at the same time, be denied the right to deduct VAT. This means that businesses must not only safeguard their own tax position but also remain alert to the reliability of their trading partners and supply chain.For taxpayers active in international trade, distribution, or wholesale, this risk is particularly relevant. The VAT chain is often complex and cross-border, increasing the risk of fraud. A mistake or lack of due diligence at one link can affect the entire chain. Even when a business acts in good faith, the absence of sufficient checks and safeguards can result in the loss of VAT recovery.
What can you do to reduce risks?
As an entrepreneur, it is essential to act demonstrably with due care and diligence. This should include:- Checking via the VIES system whether your supplier has a valid VAT number
- Verifying address details and company information
- Documenting relevant correspondence and delivery information, such as invoices, transport documents, and emails
- Avoiding cash payments without a legitimate reason
- Being alert to unusual trading structures, such as intermediaries or unclear routes
- Regular internal checks on compliance with VAT rules within your organization
Conclusion: Take responsibility yourself
The Italmoda and Konreo cases make it clear that tax authorities and courts take a strict stance against fraud in the VAT chain. Due diligence is not merely a formality but a necessary safeguard for your business. Taxpayers must take responsibility as a customer and ensure their processes are in order. By acting proactively, you avoid tax risks and contribute to a reliable trading environment.If you have questions about VAT due diligence in your supply chain and how to prevent being involved in VAT fraud, do not hesitate to contact one of our advisors.
