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In case C-276/24 (KONREO), the Court of Justice of the EU ruled that tax authorities may, under certain conditions, both deny a purchaser the right to deduct VAT and hold them liable for unpaid VAT by their supplier. The ruling, which arose from a Czech dispute, highlights the importance of supply chain diligence - especially for businesses operating in high-risk sectors or cross-border trade.
What happened in the KONREO case?
The case involved a Czech company that purchased goods from a supplier who failed to remit VAT. The tax authority denied the purchaser’s VAT deduction and held them liable for the unpaid VAT. The reasoning: the purchaser should have known they were part of a fraudulent chain. The Czech court referred the matter to the EU Court, asking whether this dual approach — denied deduction and liability — was compatible with EU VAT law.
What did the Court decide?
The Court ruled that this dual approach is permissible, provided the purchaser is given the opportunity to demonstrate that they:
- acted in good faith, and
- took reasonable measures to ensure the transactions were not part of a fraud chain.
What does this mean for Dutch businesses?
The Netherlands does not have a general rule that holds third parties liable for others VAT debts. However, certain liabilities do exist in specific situations in the collection of VAT – for example in transactions involving certain goods in sectors with elevated fraud risk, for example carousel fraud. In such cases, the Dutch tax authorities may still hold a purchaser liable under strict conditions.
The KONREO ruling confirms that EU tax authorities have broad powers to combat VAT fraud, but also that businesses must be protected when they act carefully and prudent.
What can you do?
To mitigate risk, businesses should:
- screen suppliers for reliability;
- document transactions thoroughly, including pricing and delivery terms;
- be alert to signs of fraud, such as unusually low prices or vague company structures;
- implement internal controls to detect suspicious activity early.
Final thoughts
The KONREO case shows that VAT risks can extend beyond the supplier. Purchasers may face significant financial exposure if they are unknowingly caught up in fraudulent chains. In today’s regulatory environment, supply chain diligence is not just a luxury, but an essential.