Liability and Fraud

Liability and Fraud

Tax authorities in Member States are increasingly encountering incidents of fraud and non-payment of VAT, which may arise from issues such as liquidity constraints. As a result, there has been a clear increase in the number of VAT liability cases over the past decade, as well as in the number of VAT fraud cases.

For VAT, there is a notable difference between the two topics. Fraud involves intentionally creating situations where VAT is either not paid or is incorrectly reclaimed. In these instances, significant actions may be implemented. An entrepreneur may also be subject to charges of fraud if it is determined that they either had actual knowledge of, or reasonably should have been aware of, the fraudulent activity. Over time, greater clarity has been achieved regarding the circumstances under which fraud is deemed to occur, the conditions in which an entrepreneur may be considered to have knowledge of or should reasonably have known about such fraud, and the evidentiary standards that must be satisfied by the tax authorities.

In circumstances where fraud is not present, an entrepreneur may be held jointly and severally liable for another party's VAT debt. In the Netherlands, such situations include liability within a VAT group and responsibility for VAT arising from the hiring of personnel. Over time, the circumstances under which joint and several liability applies have been more clearly defined. For example, an entrepreneur is not liable solely due to a supplier submitting a VAT return without paying the VAT to the tax authorities, even if the entrepreneur was aware of this. Member states have implemented various local legislative measures to hold third parties liable for the VAT debts of others.

New case Court of Justice of the European Union

The Court of Justice of the European Union (CJEU) is currently considering a pending case regarding the extent to which a Member State may hold an entrepreneur liable who has purchased goods and claimed a VAT deduction, when the supplier has failed to remit the VAT on that sale to the tax authorities. A noteworthy aspect of this case is that the vendor, to whom the VAT payment was originally attributable, had ceased to exist at the time when liability was assigned to the entrepreneur who acquired the goods.

On 4 September 2025, the Advocate General’s opinion for the CJEU was published. While this does not constitute a judgment, it is noteworthy that the opinion establishes significant guidelines that help define the limits of liability. Within this context, a clear and deliberate distinction is maintained between liability and fraud.

It is essential to note that, as affirmed by the CJEU, Member States are prohibited from implementing systems of unconditional liability. Accordingly, traders cannot be held jointly and severally liable provided they have undertaken reasonable measures to ensure their transactions are not linked to fraudulent or abusive practices.

In summary, the Advocate General states that a third party may be held liable only if:

1. Liability is established based on a well-defined legal ground. The principle of proportionality requires a link between the entrepreneur and the supplier, which may be a factual connection or a legal relationship, in order to prevent imposing unlimited liability. In all situations, some form of attribution is necessary.
2. A VAT liability must be present at the time a third party is deemed responsible. In addition, this VAT obligation should still be outstanding and not settled at that point.
3. The entrepreneur with whom the VAT debt originated, still exists

Once the CJEU has delivered its decision on this case, updates will be provided through our website and regular newsletter.

If you have any questions about this topic or if you would like to discuss the topic further, please do not hesitate to contact us at info@vatpartners.com