VAT Carousel Fraud in Germany – Structure, Risks and Defence

VAT carousel fraud (German: Umsatzsteuerkarussell) is a multi-stage scheme exploiting cross-border EU supplies. Understanding the structure helps businesses recognise warning signs and protect themselves. Our English-speaking tax crime defence lawyers in Frankfurt advise nationwide on prevention and defence.

How a VAT Carousel Works

In the classic model, goods are acquired VAT-free from another EU Member State and sold within the country:

• • The Missing Trader buys net from the EU and sells domestically with VAT but does not remit the tax.
• • Buffer I buys from the Missing Trader and claims the VAT shown as input tax.
• • Buffer II resells with a margin (below the concealed VAT amount).
• • The Distributor exports tax-free and reclaims input VAT – the treasury bears the loss.

Variations and Extensions

The Grundmodell can be expanded as needed: additional buffers, chains spanning multiple Member States, combinations of fictitious and real movements, and alternative “profit sharing” (e.g. reduced margins or kickbacks). These adjustments aim to obscure flows and frustrate audits.

Role of Unwitting Third Parties

So-called “unechte Karusselle” integrate unwitting third parties (good-faith suppliers or buyers) as extra buffers. Many participants may become suspects during criminal investigations even though they are unaware of the scheme.

Why Involve Good-Faith Businesses?

Key motives include concealing direct transfer paths and sourcing capabilities (e.g. warehousing, logistics via freight forwarders) the organisers lack. Sectors frequently targeted: trade in IT components, mobile phones, motor vehicles/parts, precious metals, textiles and other high-value, easily transportable goods.

Criminal Procedure Measures and Financial Freezes

If authorities identify concrete indications of a carousel, they may order searches, seizures and asset freezes (dinglicher Arrest); in serious cases, pre-trial detention may be imposed. Seized business-critical documents should be copied to keep operations running and to submit exculpatory material quickly in legal remedies against measures within German criminal procedure. Transaction volumes can reach eight-figure sums, increasing perceived flight risk.

Consequences for (Unwitting) Entrepreneurs

Unwitting business owners may face prolonged detention or asset freezes. For smaller companies, the absence of key managers can paralyse operations; liabilities remain unpaid and insolvency risk rises. Even if new management is installed, high-value freezes can create de facto incapacity to act. In the worst case, a company may be insolvent by the time of acquittal.

Compliance, Documentation and Defence

Strengthen KYC and supply-chain controls: verify VAT IDs (VIES), ensure plausible logistics, keep CMR/Gelangensbestätigung, trace payments, visit suppliers, and document decisions. Our team reviews indicators, sharpens compliance and develops defence strategies – discreetly and swiftly.

FAQ: VAT Carousel – Structure, Risks, Defence

What is a VAT carousel?

A multi-stage fraud using intra-EU supplies: the Missing Trader withholds VAT; Buffers trade domestically and claim input tax; the Distributor exports VAT-free and seeks refunds – creating an unjustified VAT advantage.

How do Missing Trader, Buffers and Distributor operate?

• • Missing Trader: buys net from the EU, sells gross domestically, does not remit VAT.
• • Buffer I/II: buy/sell domestically and reclaim input VAT.
• • Distributor: exports VAT-free and claims input VAT – the tax authority suffers the loss.

Which sectors are most affected?

IT components, mobile phones, vehicles and parts, precious metals, textiles and other high-value, easily transported goods.

What are typical red flags?

• • Unusually low prices, advance or cash payments, frequent company changes
• • No real substance on site, collection scenarios without clear logistics
• • Missing CMR/Gelangensbestätigung, new firms with high turnover
• • Aggressive volume discounts and opaque chains

What legal consequences can arise?

• • Criminal: tax evasion (§ 370 AO), searches, asset freezes, possible remand; up to 10 years in aggravated cases.
• • Tax: denial of input tax (incl. Kittel/Mahagében line), high assessments plus interest; confiscation of proceeds.

Can a good-faith entrepreneur be affected?

Yes. Without intent, criminal liability under § 370 AO is usually excluded, but input VAT can be denied and § 378 AO (negligent tax reduction) may apply if due diligence was breached.

What should I do in case of searches, freezes or a summons?

• • Remain silent, sign nothing, call a specialist defence lawyer immediately.
• • Secure inventories/seizure records; request copies of essential documents; ensure defence access to files.
• • Manage liquidity and internal communications; prepare for asset-freeze challenges.

How can I reduce risks proactively?

Implement robust KYC & compliance: validate VAT IDs, map credible supply chains, keep transport evidence, ensure traceable payments, adopt watchlist criteria (price, logistics, company age), four-eyes principle and process documentation. See our Legal Dictionary for key terms.

How does our firm support carousel cases?

Immediate crisis response (search/asset freeze), access to files and strategy, preservation of exculpatory evidence, defence against § 370 AO, protection of liquidity and structures, and preventive supply-chain checks – from Frankfurt, nationwide.

Contact our Tax and Criminal Defence Lawyers in Frankfurt

Contact us – your English-speaking tax and criminal defence lawyers in Frankfurt and throughout Germany:

• • Frank M. Peter, Lawyer, Specialist in Criminal Law
• • Dr. Caroline Jacob, Lawyer, Specialist in Criminal Law
• • Of Counsel: Prof. Dr. Frank Peter Schuster
• • Cooperation Partner: Tax Consultant and Former Tax Investigator Frank Wehrheim

Buchert Jacob Peter has been based in Frankfurt am Main for over 25 years, representing clients nationwide in white-collar crime, tax crime and criminal defence.

Phone: +49 69 710 33 330
Email: kanzlei@dr-buchert.de

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