Value-added tax (VAT) carousel fraud is a type of tax fraud that operates across the EU, including in the Netherlands. If your business trades with the wrong counterparty, overlooks warning signs, or trusts the wrong invoice, you could face denied refunds, joint liability claims, and, in some cases, criminal charges. Below, we’ll discuss exactly how this type of fraud works, how to spot it, and how to protect your business before it ends up in the carousel.

What’s in this article?

• What is VAT carousel fraud?
  
• Why should Dutch businesses care about VAT carousel fraud?
  
• How can businesses spot the warning signs of VAT carousel fraud?
  
• How can you protect your business from VAT fraud?
  
• How Stripe Tax can help
  

What is VAT carousel fraud?

VAT carousel fraud (btw-carrouselfraude in Dutch) is a high-stakes tax scam that exploits VAT mechanics across EU borders. Fraudulent actors use EU VAT rules to move goods across borders without tax, collect VAT when they sell the goods domestically, and then vanish without paying the tax. Meanwhile, someone else in the chain claims a refund on that unpaid tax. In the Netherlands, the estimated VAT compliance gap was nearly €6.00 million in 2022 or 7.9% of the VAT total tax liability.

Here’s how this fraud works:

• A company in one EU country sells goods to a company in another. Under EU rules, VAT isn’t immediately charged on this sale.

• The company that bought the goods sells them domestically, charges VAT, and collects it from the buyer.

• The business doesn’t pay the VAT it collected and becomes what’s known as a “missing trader.”

• The domestic buyer then claims a refund on the VAT they paid.

The goods might then be sold again and shipped back to the original country, starting the cycle over. That’s the “carousel” motion: the same items circulate through the same scheme over and over. They pass through a new shell company, and the cycle starts over, evading taxes each time. What can look like a legitimate supply chain is actually a closed circuit.

Here’s a basic example using three companies:

• Company A in Germany sells €1.00 million worth of smartphones to Company B in the Netherlands. Since this is an intra-EU sale, Company A doesn’t collect VAT.

• Company B, which now holds the goods, sells them domestically to Company C and adds 21% Dutch VAT. Company C pays €1.21 million total.

• Company B collects the VAT and disappears without paying the Belastingdienst, the Dutch tax authority.

• Company C claims back the €210,000 in VAT it just paid, even though that VAT was never paid to the tax authorities.

• Company C sells the goods back to Germany to restart the process.

The fraud is deliberately convoluted, with layers of shell companies helping to mask the operation and create the appearance of genuine trade. They might move the goods physically or just shuffle the paperwork. The profit comes from VAT refunds, and because the same batch of goods can be cycled through the loop multiple times, total losses can accumulate quickly.

Why should Dutch businesses care about VAT carousel fraud?

The Netherlands is susceptible to this kind of crime because of its central role in EU trade, and you don’t have to be a fraudulent actor to face consequences. If your company buys from a missing trader or sells to someone in the chain—knowingly or not—you might:

• Lose your right to claim back the VAT you paid

• Be held liable for unpaid VAT further up the chain

• Get flagged for audits, fines, or even criminal investigation

If you knew or should have known that the transaction was linked to fraud, you could be held liable. That “should have known” part is where it gets complicated. If the supplier had no real address, the prices were too good to be legitimate, the bank account was offshore, or the product path didn’t make sense, the tax authorities might claim that any prudent business should have spotted the risk. That’s the harsh reality: if the fraud is upstream from you but you didn’t catch the warning signs, you could still be liable.

Beyond the direct consequences of being inadvertently involved in fraud, carousel fraud distorts pricing and erodes fair competition. Fraudulent actors use VAT money to subsidize prices in sectors such as mobile phones, computer chips, and precious metals, which can push compliant businesses out of the market.

How can businesses spot the warning signs of VAT carousel fraud?

VAT carousel fraud is designed to blend in. Every invoice looks legitimate, and every VAT return lines up. But there are patterns. If you know what to watch for, you can avoid getting pulled into the loop.

These are some warning signs:

• Prices that don’t make sense: If someone’s offering high-value goods at a price way below the market price, that’s a warning sign. Businesses don’t usually sell at a loss unless they’re making their money somewhere else. In this case, it’s the VAT refund.

• New companies doing big business: Missing traders are often freshly registered, with no real office and a vague online presence. If a supplier or buyer is brand-new and suddenly moving huge volumes, take a closer look.

• Instructing you whom to trade with: If your supplier says, “Sell this to Company X,” or your buyer insists you buy from a specific source, that’s not a normal market dynamic. It’s a controlled loop, which is common in carousel fraud.

• Strange payment instructions: Say you’re invoicing a Dutch company, but they want to wire you money from Cyprus. Or imagine a company overpays and asks you to refund the difference to a third-party account. Those are all warning signs for money laundering.

• Too many layers, too quickly: If a deal moves through three or four hands in a few days and ends up back where it started (or nearly so), that’s the carousel in motion.

• Unusual products for the industry: If your office supply vendor suddenly wants to sell you microchips, something’s off. Fraudulent actors often try to use unwitting companies outside the sector to disguise the chain.

• Seeming too perfect to be real: Ironically, this can be a giveaway. If a company’s margins are always exactly the same, the paperwork is too clean, and it never questions the volume or terms, ask why. Real businesses typically have messier edges.

One warning sign on its own doesn’t necessarily prove fraud, but spotting a few together can mean it’s time to pause and look more closely.

How can you protect your business from VAT fraud?

While you can’t stop fraud rings entirely, you can make your business a dead end in their supply chains. Here’s how to keep your business safe.

Conduct real due diligence

Thoroughly research the companies you’re working with and document your investigation. If you ever need to prove you weren’t complicit, your paper trail matters. Be sure to do the following:

• Check VAT numbers using the VAT Information Exchange System (VIES). Ensure they’re valid, active, and match the company name and country.

• If a company is Dutch, check its KVK registration. When was it founded? Who runs it? Does it have a real office or warehouse?

• Check the business’s web presence. Look for evidence of real staff members and an operating history.

• Ask the right questions. Who are its suppliers? How long has it been trading? Getting only vague answers in return is suspicious.

Train your team to recognize sketchy deals

VAT fraud might first appear when a new supplier offers 10,000 phones for next to nothing or a customer insists you buy from their “preferred partner.” Assure that your team members who handle purchasing and sales know the warning signs and when to escalate. Document any conversations about atypical parts of the deal.

Watch the flow of money

Pay only verified accounts. If a Dutch supplier wants payment to a foreign bank in someone else’s name, stop. And be cautious with prepayment. Use escrow or staged payments when possible.

Use contracts that cover you

Include language that says your partners comply with VAT laws, require payment to a business bank account in the company’s registered name and country, and reserve the right to hold shipments or payments if something seems amiss.

Stay up-to-date on VAT rules

The Netherlands has special rules for high-risk goods such as electronics and scrap materials. Know which apply to you. If you sell video game consoles worth €10,000 or more, for example, you don’t collect VAT; the buyer is responsible for reporting and paying it.

How Stripe Tax can help

Stripe Tax reduces the complexity of VAT compliance so you can focus on growing your business. Stripe Tax helps you monitor your VAT obligations and alerts you when you exceed a registration threshold based on your Stripe transactions.

Stripe Tax can help you:

• Understand where to register and collect taxes: See where you need to collect taxes based on your Stripe transactions. After you register, switch on tax collection in a new country in seconds. You can start collecting taxes by adding one line of code to your existing Stripe integration or add tax collection with the click of a button in the Stripe Dashboard.

• Register to pay tax: Let Stripe manage your global tax registrations and benefit from a simplified process that prefills application details—saving you time and simplifying compliance with local regulations.

• Automatically collect tax: Stripe Tax calculates and collects the right amount of tax owed, no matter what or where you sell. It supports hundreds of products and services and is up-to-date on tax rules and rate changes.

• Validate tax IDs: Stripe Tax helps you collect tax identification numbers from B2B customers. You can automatically validate VAT IDs for European customers, and apply a reverse charge or zero VAT rate when necessary.

• Simplify filing: Stripe Tax easily integrates with filing partners so your global filings are accurate and timely. Let our partners manage your filings so you can focus on growing your business.

Learn more about Stripe Tax, or get started today.