Value-added tax (VAT) carousel fraud exploits tax system operations in transactions between businesses in different EU countries. This can result in the failure to pay VAT or undue VAT credits. Italian businesses that buy or sell goods within the EU need to understand how this scheme works. Even if there is no intention to participate in fraud, businesses can unknowingly become involved in supply chains that include "shell" companies or other fraudulent entities.

In this article, we explain VAT carousel fraud, including the main parties involved and their operations (e.g., missing traders, buffer companies, and brokers). We also provide some recent examples of VAT carousel fraud in Italy, in addition to a major cross-border case in the electronics sector.

We also examine the potential consequences of VAT carousel fraud for businesses, risks to watch for in dealings with suppliers and customers, and measures to reduce exposure – from verifying intra-EU VAT numbers to monitoring the risk of individual transactions.

Key takeaways

• Value-added tax (VAT) carousel fraud exploits the rules on intra-EU transactions. Businesses purchase goods from another EU country without the supplier charging VAT, resell them by applying the national VAT rate, and then fail to pay it. Meanwhile, other parties in the chain can claim a deduction for the VAT charged to them.
  
• Businesses can become part of the chain without organising or being aware of the fraud. According to the case law of the Court of Justice of the European Union, the right to deduction cannot be automatically denied. It is particularly important to determine whether the business knew or should have known that the transaction was linked to value-added tax (VAT) fraud.
  
• Certain behaviour can call for in-depth checks, such as abnormally low prices, unclear economic structures, transactions that are difficult to justify, and inconsistencies between invoices, payments, and the movement of goods. However, none of these elements alone proves the existence of value-added tax (VAT) carousel fraud.
  
• Protection from value-added tax (VAT) carousel fraud involves checks that match potential risks, including due diligence on business partners, checks on intra-EU VAT numbers via the VAT Information Exchange System (VIES), and document retention. Transaction monitoring can add an additional layer of control, but it does not replace tax checks of the supply chain.
  

What is value-added tax (VAT) carousel fraud?

To understand VAT carousel fraud, it is helpful to understand how VAT deductions typically work. When a business buys goods or services, it also pays VAT to the supplier. When the business sells to its customers, it charges VAT on those sales. Therefore, at the time of VAT settlement, the business does not remit the full amount of VAT collected from customers. It can deduct the VAT already paid on its purchases.

For example, if a business pays €22 in VAT on a purchase and then collects €44 in VAT from its sales, in simple terms, it will pay the difference – €22 – to the tax authority.

There are specific rules for B2B transactions between EU countries. If the requirements are met, the seller makes the intracommunity supply without charging VAT from its own country. The purchase is subject to VAT in the member state of destination under the rules for intracommunity acquisitions. For intracommunity supplies made from Italy, the applicable legal framework is contained in Article 41 of Legislative Decree No. 331/1993.

VAT carousel fraud disrupts this mechanism. In its simplest form, an Italian company buys goods from a supplier in another member state and resells them in Italy, applying the standard VAT rate. Therefore, the business collects the tax from the customer but does not pay it to the tax authority. Then, the buyer further down the chain can deduct the VAT shown on the invoice it receives.

This creates a mismatch. One party deducts – or, in certain situations, claims a refund for – VAT that another party in the chain has not paid. In more complex schemes, invoices for non-existent or subjectively non-existent transactions are also used to create undue VAT credits. The European Commission defines VAT carousel fraud – also known as Missing Trader Intra-Community (MTIC) fraud – as a common form of VAT fraud in the EU.

The term "carousel" is used because the goods are resold to another member state and can re-enter the same chain, which starts the cycle over again.

How does VAT carousel fraud work?

There is no single model, but a VAT carousel fraud scheme can involve certain recurring roles:

• Shell company or missing trader
  This entity buys goods from a business in another member state through an intracommunity transaction and resells them on the domestic market, applying the standard Italian VAT rate on the invoice. The shell company collects the VAT shown on the invoice from the customer but does not remit it to the tax authority. In a typical scheme, the fraudulent actor also fails to meet their tax obligations – including filing an annual VAT return – and can subsequently cease operations or become untraceable.
  
• Buffer companies or conduit companies
  These are inserted between the shell company and other operators in the chain through one or more intermediate transactions. Their roles involve increasing the number of steps in the process and making it harder to trace the link between the missing trader and the entity furthest down the chain.
  
• Broker
  This role is generally found towards the end of the scheme and involves purchasing goods on the domestic market and then reselling them to a business in another member state. In this way, the broker can claim a VAT credit on purchases made in Italy while carrying out a new intracommunity supply. In proper "carousel" schemes, the goods can subsequently re-enter the same chain, and the cycle can start all over again.
  

Here is an example of a simplified model of VAT carousel fraud:

• A German supplier sells goods worth €100,000 to an Italian company without charging German VAT on the intracommunity supply, in accordance with the applicable rules.
  
• The Italian company, which operates as a shell company, resells the goods to another Italian company for €100,000 plus VAT.
  
• The shell company collects the VAT but never pays it to the tax authority, while the buyer records it as deductible VAT.
  
• The goods can pass through one or more buffer companies and end up with a broker, who then resells them to a business in another member state.
  
• If the goods subsequently re-enter the same supply chain, the cycle can repeat.
  

VAT carousel fraud: Recent examples in Italy and the EU

Examples of VAT carousel fraud that have emerged in recent years illustrate both the economic scale of the phenomenon and the variety of sectors affected.

Bologna: Operation Carry-on-sell

In Operation Carry-on-sell – which was made public by the Italian Finance Police in 2023 – the investigation showed an alleged VAT carousel fraud scheme that is said to have produced roughly €44 million in VAT evasion from 2016–2019.

According to the Italian Finance Police, Italian companies were purchasing information technology (IT) products from a Polish business and then routing them through other companies. In the Bologna area alone, authorities discovered fraudulent invoices totalling approximately €210 million.

Prato: Metallo investigation into luxury vehicles

In October 2025, the European Public Prosecutor's Office (EPPO) announced seizures as part of the Metallo investigation into an alleged VAT carousel fraud totalling €42.8 million in the luxury vehicle trade. From 2019–2024, more than 1,700 vehicles are alleged to have been imported from Germany into Italy using shell companies registered under false names and fake invoices.

Naples: Fuel Family investigation into the fuel sector

The Fuel Family investigation focused on a network operating in the fuel sector. In November 2025, the EPPO announced precautionary seizures in connection with an alleged VAT fraud case involving €260 million. According to the investigation, fuel originating in part from Croatia and Slovenia was allegedly introduced into the Italian market through a network of more than 40 missing traders.

Moby Dick investigation: Cross-border network in the electronics sector

In November 2024, the EPPO launched a large-scale international operation against an alleged VAT carousel fraud worth around €520 million. It was linked to the sale of AirPods, laptops, and other electronic products.

Invoices issued from 2020–2023 totalled more than €1.3 billion, and the operation involved companies in many countries. In 2026, the first convictions occurred. On 17 September 2026, the EPPO announced further convictions and a confiscation exceeding €300 million.

These examples of VAT carousel fraud highlight a recurring pattern of high-value goods that are easily moved or resold and involve high transaction volumes.

What are the potential consequences for businesses involved in VAT carousel fraud?

The consequences of VAT carousel fraud depend on the alleged conduct, company's role, and level of awareness. The following are some of the main tax, administrative, criminal, and financial consequences that can arise, but this list is not exhaustive and does not apply to every case. Being part of a chain where another party commits fraud does not necessarily equal participation in the fraud scheme.

Unknowing involvement in fraud

With subjectively non-existent transactions, the tax authority must prove – including through objective evidence and presumptions – that the recipient of the invoice knew or should have known that the transaction was part of a VAT evasion scheme by exercising the typical diligence expected of a business operator in the sector. The Court of Cassation reaffirmed this principle in 2025.

If the business was unaware of the fraud and adopted the controls reasonably required under the specific circumstances, being part of the fraudulent chain is not enough to cause the business to lose its right to deduct VAT.

Denial of the right to deduct VAT and administrative penalties

If it is proven that the business knew or should have known about the fraud, the tax authority can deny the right to deduct and recover the VAT unduly deducted.

Administrative penalties can be added to this recovery. Following the 2024 reform of the tax penalty system, violations committed on or after 1 September 2024 that involve undue VAT deduction can result in a penalty equal to 70% of the amount of the deduction made. This is outlined in Article 6, Paragraph 6 of Legislative Decree No. 471/1997.

On the other hand, if the undue deduction results in an inaccurate VAT return, Article 5, Paragraph 4 of the same decree applies. It provides for a penalty equal to 70% of the additional tax due or the difference in the credit used, with a minimum of €150.

When an inaccurate tax return results from the use of false documentation, non-existent transactions, or other fraudulent conduct, the penalty can increase between one-half and double the original amount. In the case of invoices for subjectively non-existent transactions (i.e., transactions that took place but have invoices referring to parties other than the ones involved), the increase applies to the buyer or client only, if their participation in the fraud is proven.

Criminal consequences

Criminal liability requires additional conditions beyond mere participation in the chain or loss of the right to deduct. Depending on the specific conduct involved, various tax offences can be applicable under Legislative Decree No. 74/2000:

• Fraudulent declaration using invoices or other documents for non-existent transactions
  Article 2 of the decree specifies imprisonment for a term of four to eight years for those who use such documents to report fictitious expenses or other liability items for the purpose of tax evasion. This includes using items that relate to non-existent transactions. If the fictitious expenses amount to less than €100,000, the penalty involves imprisonment from one year and six months to six years.
  
• Issuance of invoices or other documents for non-existent transactions
  Article 8 of the decree also stipulates imprisonment for a term of four to eight years for those who issue such documents to enable third parties to evade taxes. If the misrepresented amount is less than €100,000 per tax period, the penalty includes imprisonment for one year and six months to six years.
  
• Failure to pay VAT
  Article 10-ter of the decree specifies imprisonment for six months to two years when VAT shown on returns and not paid exceeds €250,000 per tax period. This is under the conditions set out in the provision and provided the debt is not being paid off in instalments.
  

Prison sentences for tax offences apply to individuals responsible for criminal conduct, such as directors. However, the company can be subject separately to administrative liability under Legislative Decree No. 231/2001 for certain tax offences committed in its interest or for its benefit. This includes application of relevant monetary penalties and measures that can restrict business operations, where applicable.

Seizure and confiscation

In addition to tax and criminal consequences, there can be a sizeable financial impact. With convictions or penalties for the offences outlined in Legislative Decree 74/2000, Article 12-bis stipulates the forfeiture of assets that represent the economic benefit from the offence or compensation paid to commit it. When this is not possible, it requires forfeiture of other assets available to the person responsible for an equivalent value.

The provision also governs seizure for the purpose of confiscation and establishes specific safeguards when the tax debt is being paid off through a regular instalment plan.

How to recognise the warning signs of VAT carousel fraud

One unusual element does not prove the existence of VAT carousel fraud. However, the presence of one or more irregularities can warrant closer scrutiny of the supplier, customer, or specific transaction.

Prices below market levels

A price considerably below typical market conditions can indicate a risk that requires further investigation. This is especially true when it involves high-value or easily resellable goods. In these cases, it is useful to verify if there is a plausible commercial reason for the price difference and retain the relevant documentation.

Corporate structures inconsistent with volume of business

Further checks can be appropriate when a newly formed company – or one with a minimal operating structure – suddenly handles large volumes of goods or transactions. The presence of poorly organised premises, lack of staff, or other characteristics inconsistent with the declared business activity can warrant a more thorough review of the entity.

Frequent changes in company or bank details

Recurring changes in the company's registered office, directors, or bank account information can be another cause for concern, particularly if combined with other irregularities. Requests to make payments to accounts in the name of parties other than the contractual entity also warrant closer scrutiny before proceeding.

Inconsistencies in documentation and movement of goods

Invoices, orders, shipping documents, and movement of goods need to contain consistent information. Discrepancies that are hard to explain between the documentation and the physical route of the goods can require further checks. For example, some VAT carousel fraud investigations have identified transactions where goods stayed at the same logistics hub while multiple sales were recorded.

Unusual transaction patterns

For businesses that sell online, data related to individual transactions can reveal irregularities. Sudden spikes in volumes, unusual payment methods, or patterns that differ considerably from the customer's history can warrant additional checks. These signals relate to transaction risk and do not prove the existence of VAT carousel fraud on their own.

How to protect a business from VAT carousel fraud

Due diligence must be proportionate to the circumstances. The Court of Justice of the European Union has clarified that a company cannot be required to conduct complex investigations into its entire supply chain. This would effectively shift tasks that are the responsibility of the tax authorities onto the company. However, when there are indications of irregularities, it can be reasonable to expect further verification of the other party's reliability.

Check the intra-EU VAT number

For intra-EU transactions, checking the intra-EU VAT number is one of the basic controls. The European Commission's VAT Information Exchange System (VIES) system shows whether a VAT number is registered for cross-border transactions within the EU.

However, a "valid" VIES response does not certify that the company is reliable or that a specific transaction is risk-free. Likewise, a "non-valid" response does not necessarily imply fraud. For example, the VAT number might not yet be activated for intra-EU transactions. The European Commission also recommends keeping a record of any checks performed in case of tax audits.

Assess the other party and retain documentation

Before entering into a business relationship, verify that the information the other party provides is consistent with declared business activities, and research any anomalies. The depth of these checks can intensify when the transaction involves risk factors, such as prices that are difficult to justify or atypical delivery terms.

It is also helpful to keep contracts, orders, invoices, proof of payments, shipping documents, and results of intracommunity VAT number checks in order. This documentation does not guarantee the absence of liability, but it can help reconstruct the transaction and the checks carried out by the business.

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