In principle, an investigation for VAT fraud can affect any company that trades across borders, regardless of industry, size, or any wrongdoing of its own. This is especially true for companies based outside Germany that trade with German or EU partners, since they may have little visibility into a supply chain once goods change hands further down the line. It is enough to have unknowingly been part of a multi-tier supply chain. Anyone who comes under scrutiny by tax investigators, the European Public Prosecutor’s Office (EUStA), or the European Anti-Fraud Office (OLAF) should seek legal advice as quickly as possible.

Schlun & Elseven provides comprehensive advice and defense to clients in tax criminal law matters, from assessing whether a voluntary self-disclosure would exempt a client from prosecution to representing clients in tax criminal proceedings before the courts, particularly when companies become subject to an investigation through no fault of their own. Our lawyers regularly represent foreign companies that find themselves facing a German investigation, providing local representation and guiding clients through a legal system and language that may otherwise be unfamiliar.

Missing Trader Fraud: The Principle Behind Carousel Fraud

The most common scheme is fittingly known as carousel fraud, or missing trader fraud. The underlying principle exploits a legitimate feature of EU tax law: supplies of goods between two EU member states are exempt from VAT. It is precisely this exemption that is abused for fraudulent purposes.

The scheme typically works as follows. A company in Country A supplies goods to a buyer in Country B without charging VAT, entirely lawfully. That buyer then resells the goods within Country B to another trader and charges VAT on the sale. However, the buyer never remits this tax to the relevant tax authority. The company behind this step is often a shell entity designed to generate as much revenue as possible before the authorities take notice. This is why it is called a “missing trader,” a trader that simply disappears once its role is complete.

The final party in the chain then sells the goods back abroad and claims a refund of the VAT that the state never actually received. The state effectively pays twice, once through the unpaid tax and once through the refund it grants. The cycle then begins again, often spanning several countries.

High-value, easily tradeable goods such as smartphones or headphones are common targets. In many cases, the goods being traded do not physically exist at all, with the transactions taking place purely on paper. This fraud mechanism alone causes losses of up to EUR 30 billion across the EU each year.

When Companies Become Targets: The Legal Risks of Involvement in VAT Fraud

A particularly insidious aspect of carousel fraud is that companies can become entangled in fraudulent supply chains without their knowledge. A company that purchases goods from a supplier that later turns out to be a missing trader risks being investigated by the European Public Prosecutor’s Office (EUStA), the European Anti-Fraud Office (OLAF), or national tax authorities.

The resulting criminal charge is often for tax evasion under Section 370 of the German Fiscal Code (Abgabenordnung, AO), with authorities examining whether the company knew or should have known about the fraudulent structure. In particularly serious cases, such as those involving organized gangs or large-scale damage, Section 370(3) of the AO provides for prison sentences of up to 10 years. An initial suspicion does not automatically mean that the company acted with actual intent. What typically matters most is whether early, skilled legal defense can show the company had no knowledge of the fraudulent structure, refuting the allegations.

Errors in a company’s bookkeeping, unclear supply chains, or inadequate compliance structures can likewise lead to a company being wrongly suspected. In such situations, every hour counts. The sooner legal counsel becomes involved, the better the chances of preserving options and avoiding missteps as proceedings unfold. This is particularly true for companies based abroad, where unfamiliarity with German criminal procedure can make early missteps more likely.

Cross-Border Cooperation: Authorities Set to Gain Greater Access

Complex corporate structures and limited data access have so far made investigative work considerably more difficult for authorities. That is expected to change. In early May 2026, EU finance ministers agreed in Brussels to grant the European Public Prosecutor’s Office and OLAF substantially expanded access to national VAT data on cross-border transactions. Cooperation between national tax authorities is also set to be strengthened.

The European Commission initiated these reform steps in late 2025. Before the new rules take legal effect, the European Parliament must still deliver its opinion, expected in July 2026. With expanded data access, affected companies are likely to face significantly greater investigative pressure. For companies, this means that early, forward-looking legal guidance is becoming even more important, particularly for those headquartered outside Germany, who may otherwise learn of an investigation later than a domestic company would.

VAT Carousel Fraud: How Companies Can Protect Themselves From Unwitting Involvement

Targeted due diligence is becoming increasingly important for companies seeking to avoid unwitting involvement in a VAT carousel scheme.

There are several key precautionary measures companies can take to minimize tax-related risks early and maintain legally compliant operations over the long term.

  • Caution with unusually favorable offers: When goods are offered well below market value, caution is warranted. Prices that are significantly too low can indicate involvement in a carousel scheme.
  • Review of unusual trading patterns: Repeated trading of the same quantity and product type between the same partners should also raise concern. Spot checks of serial numbers can help rule out manipulation.
  • Thorough vetting of business partners: When irregularities arise, the identity and address of a contractual partner should be carefully verified. Business partners who are difficult to reach or lack a verifiable business address are warning signs of risk.

Schlun & Elseven: Legal Support for Companies Facing VAT Fraud Investigations in Germany

A search of business premises, a summons from tax investigators, or a letter from the European Public Prosecutor’s Office: the start of tax criminal proceedings often catches companies off guard. Schlun & Elseven stands by clients in exactly these situations, including companies with no physical presence in Germany that suddenly find themselves the subject of a German investigation. It is important to remember that an investigation is not a conviction. Many proceedings against companies acting in good faith are dropped following careful legal review.

Our firm supports companies at every stage of proceedings, assessing their legal position, managing communication with the authorities, and mounting a defense in court. Where a voluntary self-disclosure under Section 371 AO may be an option, our specialized lawyers carefully assess whether the statutory requirements are met and how an effective disclosure should be structured. Our lawyers also advise companies on tax compliance management systems and support their effective implementation.