For the last few years, we have seen an increasingly strong sealing of the VAT anti-fraud system. The sealing is so strong that it is sometimes starting to take the oxygen out of the mouths of honest but sometimes unaware entrepreneurs too. Not only buyers, but even drivers or freight forwarders are getting hit.
For several years now, we have been observing increasingly strict tightening of the VAT fraud prevention system. This tightening is so severe that it sometimes affects honest but unaware entrepreneurs. Not only buyers are affected, but even drivers and freight forwarders.
Debt Collection Instead of Prosecuting Fraudsters: Controversial KAS Practices
According to the statement of the new KAS (National Revenue Administration) head, Marcin Łoboda[1], in recent years customs and tax offices have adopted a questionable practice. In tax fraud cases, authorities have primarily targeted entities from which public liabilities could realistically be recovered — some office heads even issued specific guidelines in this regard.
Caught in the VAT Carousel: Absurd Consequences of Tax Office Actions
In practice, this meant that shell companies and straw men, established solely for criminal purposes, were often ignored. Tax authorities mainly targeted entrepreneurs with assets, regardless of their role or awareness of the criminal scheme. This reveals how the pursuit of results can sometimes blind authorities to the impact their actions have on ordinary citizens.
And the consequences can be devastating. Random individuals are often forcibly inserted into a VAT carousel alongside straw men from boards of companies created solely for VAT fraud. These actions resemble a roundup. Suddenly, the lights go out and law enforcement begins charging every company president whose business — even unintentionally — became part of a fraud scheme. As a result, management personnel can face up to 25 years in prison.
What Are VAT Carousels?
Generally speaking, a VAT carousel is a tax fraud scheme that exploits the mechanism of intra-community supply of goods and the 0% VAT rate.
The purpose of such looped transactions is not to sell goods — quite the opposite. The idea is to keep selling the same product over and over. That is, sell without truly selling. This is key because, in a carousel, the product serves solely as a carrier of VAT. The carousel spins with the product to generate an undue tax benefit — either by claiming refunds or avoiding payment. In fact, the product may not even exist.
How is that possible?
Often, in carousel schemes, the turnover exists only on paper. Following the principle that paper accepts anything, there is no real turnover. Only mass-produced fake invoices.
A close cousin of the VAT carousel is the so-called chain fraud. Its structure is simpler and based not on looping supplies, but on a key element — the disappearing taxpayer.
Is Every VAT Payer a Fraudster? Overzealous Law Enforcement in a Nutshell
Is it easy to get caught in a VAT carousel? Very much so!
Is it easy to get out? Unfortunately, it’s not!
People often fall into this by forming partnerships through acquaintances, online contacts, or business networking events.
Everything goes smoothly until one day a tax audit reveals irregularities, triggering a criminal-fiscal procedure. Or suddenly, out of the blue, agents with three-letter abbreviations on their jackets visit board members at home and raid the company’s headquarters.
What happens next?
Well, those board members have to hear the authorities’ reasoning.
On what basis can someone be placed in pre-trial detention for months or lose their life’s savings? Below are some examples of how absurd the authorities’ reasoning can be as they try to charge someone with participation in a VAT carousel — or even in an entire organized criminal group.
- Example 1: Business isn’t for the little guy — the unlucky share capital
In one case, authorities claimed that a company couldn’t have actually conducted business because its share capital was only a few dozen thousand PLN. According to the authorities, that wasn’t enough to purchase high-value goods.
- Example 2: Margin too low
You got a good deal on goods and think you found a bargain? Be careful with your margin. Authorities often allege VAT fraud participation when your margin is deemed too low by a prosecutor. Worse if there were others before you with similarly low markups. Don’t know the wholesale purchase price from your supplier? Investigators don’t care.
- Example 3: You must document transactions… but if you do, it’s probably fake
A taxpayer, following the law, verified their partner’s EU VAT number in VIES, collected export documentation, and submitted the correct declaration. They even got a buyer’s statement that goods wouldn’t return to Poland, took photos of goods and loading, and physically helped load them. Yet, once the carousel scheme was uncovered, the taxpayer was labeled a buffer, and their due diligence was dismissed as mere window dressing. Because, as the saying goes, excessive diligence is worse than…
- Example 4: No marble palace as headquarters
Even though the Ministry of Finance stated that virtual offices shouldn’t automatically disqualify one from VAT registration, coworking spaces are still viewed with suspicion. Authorities sometimes argue that using a virtual or coworking office indicates criminal activity — and that’s how contractors are treated as well.
- Example 5: When time is short
Not just in carousel cases, but often, authorities launch preparatory proceedings just to prevent tax liabilities from becoming time-barred. Once a criminal case starts, it can’t last forever. In practice, charges are sometimes filed without proper investigation just to keep the case going — even without a final tax decision (!).
What Are the Penalties for Participating in a VAT Carousel?
Criminal charges depend on the specific scheme and the role assigned by law enforcement. It’s impossible to predict in advance which offenses might be charged in carousel cases.
In addition to fiscal offenses under the Fiscal Penal Code (like Articles 54, 55, 56, or 62), charges under the Criminal Code may also be brought. In such cases, the penalties are significantly harsher — up to 25 years in prison.
|
Most Serious Criminal Charges |
|
| Article 270a CC – material forgery of invoices: falsifying or altering documents in significant tax matters to make them appear genuine | · Up to 8 years in prison
· Up to 20 years if the invoice exceeds PLN 5 million or if the perpetrator gained a steady income from it · Up to 2 years for lesser cases |
| Article 271a CC – intellectual forgery of invoices: issuing or using invoices that misrepresent facts relevant to tax calculations/refunds | · Up to 8 years in prison
· Up to 20 years if the invoice exceeds PLN 5 million or the perpetrator gained a steady income · Up to 3 years for lesser cases |
| Article 286 CC – fraud: misleading tax officials to gain financial advantage, e.g., an undue VAT refund | · Up to 8 years in prison
· Up to 10 years if the tax exceeds PLN 200,000 · Up to 20 years if the tax exceeds PLN 1,000,000 · Up to 25 years if the tax exceeds PLN 10,000,000 · Up to 2 years for lesser cases |
[1] Statement by KAS chief Marcin Łoboda: https://www.rp.pl/podatki/art40614051-skarbowka-bedzie-lapac-juz-tylko-prawdziwych-oszustow
| Author: | Michał Busz |
About authors
Ask the author a question
BARTŁOMIEJ PIETRUSZKA
Partner, Attorney-at-Law, Head of White Collar Crime Department
About authors
Ask the author a question
BARTŁOMIEJ PIETRUSZKA
