Not Just for Big Players

If you think VAT fraud is a distant, high-level concern, let this case serve as your wake-up call. The European Court of Justice (ECJ) has made it painfully clear: even micro and small companies can become collateral damage in the VAT battlefield. The recent judgment in the FAU/VERAMI case forces every Dutch entrepreneur to ask: How far does my responsibility go for what happens up my supply chain?

The Case in Plain Language

• What happened?
  A Czech company, FAU, bought fuel from another Czech company, VERAMI. Tax fraud was later discovered somewhere in the supply chain.
• The fallout:
  Both companies were declared insolvent. The tax authorities refused FAU’s right to deduct the input VAT on the fuel and also demanded payment for VAT that VERAMI (the supplier) had failed to pay.
• Why does this matter?
  Because the authorities hit FAU twice: they denied VAT deduction and demanded FAU cover the unpaid VAT of its bankrupt supplier.

The Legal Bottom Line: Two Hammers, One Nail

The ECJ has ruled:

“It is legally acceptable for the tax authority to BOTH refuse your right to deduct input VAT AND make you jointly and severally liable for the unpaid VAT of your supplier—if you knew or should have known about VAT fraud in the chain.”

Translation: If you’re not alert and fraud happens anywhere in your supply chain, you risk paying VAT twice, once through denied deduction, again through liability for your supplier’s fraud.

What Does This Mean for You as a Dutch Entrepreneur?

1. “I Didn’t Know” Is No Longer a Defence

The court’s position is mercilessly practical:

• If you should have known there was VAT fraud, even if you weren’t actively involved, you’re on the hook.
• The bar is not criminal intent, but a failure to notice red flags.

2. Your Risk Management Must Extend Beyond Your Own Books

• The days of “trust but verify” are over.
• You need to scrutinize your suppliers, not just for business quality, but for tax compliance.
• Payment to foreign or non-standard bank accounts, odd pricing, or lack of due diligence can all be interpreted as “should have known.”

3. Double Jeopardy: Real Financial Exposure

• You can be denied the right to deduct VAT (which eats directly into your margin), and
• Be required to pay your supplier’s VAT debt out of your own pocket.

4. Insolvency is No Shield

• If your supplier goes bankrupt, you still face the taxman’s claim.
• Don’t expect to recover these sums through legal recourse, the system is designed so the state’s claim comes before yours.

Practical Steps: What Should Micro and Small Entrepreneurs Do?

A. Strengthen Your Supplier Checks

• Know your suppliers. Get registration details, verify VAT numbers, check payment accounts, and look for anomalies.
• Document your diligence. If you end up in court, only evidence of real checks and due care will save you.

B. Train Your Team

• Everyone involved in purchasing or payment must understand what VAT fraud looks like in practice.
• Set up protocols: unusual payment requests, foreign accounts, and unexpected price deviations must be flagged.

C. Update Contracts and Payment Flows

• Make sure your contracts allow you to withhold payment in case of compliance doubts.
• Avoid paying into accounts not registered with the supplier.

D. Don’t Rely on Tax Advisors Alone

• This judgment shifts the burden of proof onto you.
• Advisors can help, but only robust internal procedures will protect you from joint and several liability.

Systemic Implications: A Warning for the Dutch Market

Why is this Especially Relevant for the Netherlands?

• The Dutch system is considered robust, but supply chains often extend internationally, where risk signals are harder to spot.
• Micro and small companies are typically less resourced to conduct in-depth supplier vetting, but the ECJ offers no mercy for lack of scale.

Expect More Audits

• The message from the tax authorities is clear:
  • Ignorance is no excuse.
  • If you benefit from a transaction, you are expected to act as a gatekeeper for the tax system.

The Age of Passive Compliance is Over

This is not the time to hope you’ll be overlooked. The ECJ’s judgment draws a hard line:

• You are not only responsible for your own compliance, but for the integrity of your supply chain.
• For Dutch entrepreneurs, the lesson is blunt: vigilance is now a business survival skill.

If your company buys from suppliers—especially cross-border or high-risk categories—upgrade your due diligence now. The cost of doing nothing is no longer just competitive risk; it’s double taxation, insolvency, or worse.