Participation in VAT fraud – how to avoid it?

Leinonen tax team would like to share insights on where businesses should pay attention in order to avoid being involved in VAT fraud.

1.    We suggest that you always check if the partner’s VAT code is valid before you start a business transaction with it and as well periodically when performing other transactions.

·       You can check Lithuanian VAT payers by clicking here

·       You can check EU VAT payers by clicking here

After partner’s verification, we recommend that you save the results in order to prove, if necessary, that you have verified the business partner’s VAT code.

2.     To collect and keep the documentation related to transactions with your business partner. These may include supporting documents for the purchase of goods, transportation and other miscellaneous documents. If your partner is unwilling / unable to provide these documents, this can be seen as a risk factor that the partner acts unfairly, in which case we recommend that you take other measures to gather as much information about the partner as possible from publicly available sources, specialized information sources which are able to evaluate partner’s credit history, etc.

3.     To monitor process of the transaction for any suspicious partner’s actions. We suggest that you keep contact with your partner regarding any issues that are unclear and that you keep a record of any correspondence or conversation. This could be taken as evidence that you are interested in your partners and the factual circumstances of the business transactions, i.e. you act with care and responsibility.

In assessing judicial decisions, the right to deduct VAT may be abolished when:

-       the transactions shown in the documents do not reflect the real transactions and the documents do not confirm the true content of the transactions.

Cases of the Supreme Administrative Court of Lithuania (SACT): A-356-575/2019, eA-642-442/2019

-       the taxpayer was fraudulent with its transactions and was participating in VAT fraud because the taxpayer was aware or could be aware of VAT fraud done by the business partner.

Case of the SACT: A-103-438/2019

The case law forms the stance that it is important to take interest in your business partners and to collect supporting information.

We would like to note that although the law does not directly impose the obligation to control your business partners, the obligation to take interest in your business partners’ activities comes from the tax liability to pay taxes correctly.

We would like to remind you, that Leinonen tax team can provide comprehensive tax advice, review various documentation and provide comments about potential risks.

The information above is prepared by the Leinonen tax team.