VAT: From audit to criminal prosecution

A simple inquiry letter from the Dutch Tax Authorities or a VAT audit can quickly escalate into a criminal investigation. And be aware: most tax-related criminal cases handled by the FIOD (Fiscal Intelligence and Investigation Service) involve VAT. Now that the European Public Prosecutor’s Office (EPPO) is stepping up its efforts to prosecute international VAT fraud, there’s a new dimension: international VAT fraud is being tackled more frequently and more forcefully.

Once the Tax Authorities hand over a case to the FIOD, it’s often no longer just about incorrect tax returns. These cases are frequently accompanied by suspicions of forgery (e.g. fake invoices) and money laundering — namely, the spending of VAT that was wrongly not paid. What does such an investigation look like, and how can you ensure a strong legal and strategic position from the start? In this blog, I highlight several key considerations.

The starting point: The inquiry letter

A VAT (turnover tax) return can prompt the Dutch Tax Authorities to initiate an investigation. This may be triggered by a large VAT refund claim, significant cross-border transactions, or involvement in a sector the Tax Authorities consider high-risk for VAT fraud — such as car trading, real estate, or construction. Another common reason is that the Tax Authorities have already received information from your customers or suppliers that raises red flags.

In principle, the Tax Authorities are not required to disclose the reason for an investigation. As a result, it’s often difficult to determine exactly what the investigation is focused on. Still, we find that it’s worthwhile to assess potential risks right from the very first inquiry letter or the announcement of a tax audit.

Some of the common triggers for a VAT audit — which can also escalate into criminal proceedings — include:

1. Input tax deduction for non-business expenses

In 2025, the Dutch Tax Authorities are stepping up their scrutiny of VAT deductions for non-business expenses. My colleague Nick van den Hoek has already written a blog on this topic. If such issues arise during a VAT audit, they may also have consequences for other taxes — particularly income tax and corporate income tax. In some cases, voluntary disclosure (inkeer) is still an option, which can prevent tax penalties or criminal prosecution.

However, if substantial private expenses have been booked as business costs, this can lead to lengthy criminal investigations and even significant prison sentences — as illustrated by a 2019 Supreme Court ruling involving a renovation project between 2008 and 2010. Accusations of forgery are also a risk: invoices for private expenditures may have been wrongly addressed to the company. Such discrepancies can also come to light through a (third-party) investigation at a supplier.

2. VAT liability on the balance sheet without filing a supplementary return

Slow-paying customers or other cash flow problems can lead entrepreneurs to reduce their VAT payments during the year. These “reduced” returns are often inaccurate, with corrections (voluntary disclosures) made through supplementary returns at year-end. Problems arise, however, if there still isn’t enough money to pay the VAT at year-end. This results in a VAT liability recorded on the company’s balance sheet that remains unpaid. Accountants or tax advisors are often required under the Dutch Anti-Money Laundering and Anti-Terrorist Financing Act (Wwft) to report this.

The Tax Authorities actively target this issue through special projects or thematic controls, and it can sometimes lead to criminal prosecution — even for relatively small VAT debts.

It’s generally better to voluntarily disclose the debt on time and engage with the Tax Authorities to arrange a payment plan, even if funds are lacking.

3. Failing to meet the conditions for the margin scheme

By using the margin scheme, you only pay VAT on the profit margin when buying and selling used goods. The margin scheme can only be applied when purchasing from someone who has not deducted VAT—such as a private individual. Strict conditions apply, including the requirement for a purchase statement that meets specific criteria. If these purchase statements are missing, do not comply with the rules, or if the purchase and sales records contain discrepancies, this can lead to significant tax adjustments and even criminal prosecution.

4. Information from abroad about possible carousel fraud

VAT carousel fraud is tackled aggressively, both nationally and, with the European Public Prosecutor’s Office (EPPO) coming into play, at the European level. The types of goods involved in this fraud have changed over the years—from electronics, soft drinks, cars, metals and scrap, CO2 rights, to now also fuel. Combating intra-community VAT fraud remains a top priority for the FIOD in the coming year.

Investigations into carousel fraud often begin with information from foreign authorities. Through the Intra-Community Transactions Report (ICP), European tax authorities verify whether the 0% VAT rate is correctly applied and whether the foreign buyer correctly remits the VAT. If doubts arise abroad, a SCAC request is sent to the Netherlands, prompting the Tax Authorities to request data and conduct audits at your company.

It is crucial to keep your administration in order: do you know who your buyer is, have you verified their identity, checked via the VIES system that their VAT number was still active, and can you prove that the goods were transported to them? At the slightest doubt, the Tax Authorities often impose a reassessment for the full 21% VAT.

Criminal investigations may also follow, often including other offenses such as forgery (the buyer on invoices may not be the actual buyer), money laundering (where the unpaid VAT was spent), and compliance with the Anti-Money Laundering and Anti-Terrorist Financing Act (Wwft)—are there unusual transactions that should have been reported?

Recent case law developments show the burden of proof for criminal convictions has lowered. Previously, prosecutors needed to prove knowledge of fraud within the supply chain of buyers or suppliers, which was often difficult. Now, convictions are possible if someone “committed fraud themselves” by invoicing a party deemed by the FIOD not to be the “real buyer.” Intermediaries also face an increased risk of conviction under this standard.

When does an audit turn into a criminal case?

Many VAT adjustments are settled directly by the Tax Authorities, which is usually preferred. This approach is often more efficient and helps avoid a criminal record and complications with banks, insurers, or advisors. However, when there is suspicion of intentional wrongdoing and the tax interest amounts to €100,000 or more, a criminal investigation is typically considered. Note that this financial threshold is not absolute—criminal proceedings can also be initiated for lower amounts, especially if other offenses are involved, such as forgery. As mentioned earlier, forgery often surfaces in VAT cases. Money laundering is also quickly brought into play, since the unpaid VAT is likely spent somewhere.

The rules governing the choice between a tax penalty and criminal prosecution are outlined in the ‘Protocol AAFD,’ but these guidelines are quite flexible. For example, in thematic enforcement projects like ‘Project Paperclip,’ even very small tax losses can lead to criminal prosecution. Sometimes, a combination of a tax settlement for the tax loss and criminal prosecution for other offenses, like forgery, is chosen. So, while the Protocol AAFD offers some guidance, it leaves a lot of discretion to the authorities.

What are the consequences when it becomes a criminal case?

If you anticipate difficulties in responding to a tax inquiry letter or during a tax audit, it’s crucial from the outset to be aware that a criminal investigation may follow. Such an investigation can have significant personal and business consequences, including:

• A criminal investigation often lasts a long time—sometimes several years.
• During the investigation, you may be arrested and detained, sometimes for a few days, sometimes longer.
• Assets can be seized, including your home, bank accounts, cryptocurrencies, cars, etc. The assets of partners may also be at risk. Cars and cryptocurrencies are often sold quickly.
• You may face difficulties with banks, insurers, and advisors. Applying for visas for international travel can also become more complicated.
• A criminal conviction can result in imprisonment, fines, community service, or even professional disqualification.
• After a criminal conviction, obtaining a Certificate of Good Conduct becomes harder, and doing business with the government or applying for permits can become difficult or impossible (partly due to the Dutch Bibob Act).

Not all of these consequences can be avoided. However, preparation helps, and sometimes a criminal investigation can truly be prevented by properly responding to an inquiry letter and taking the right approach during a tax audit. If a criminal investigation does arise, good preparation and a strategic approach can help make the consequences more manageable.

Our advice is to recognize early on the potential impact of asset seizures and possible closure of bank accounts. That preparation is crucial, and we are happy to assist you with the expertise we have in-house.

This article is translated from Dutch to English with ChatGTP and may not be 100% accurate. Although we try to reproduce the original Dutch text as accurately as possible, no rights can be derived from the content of machine-translated texts.