Is even stricter marketplace compliance one of the keys to limiting (marginal) VAT fraud?

Complex cross-border fraud schemes continue to drain billions from the European Union each year, with both traditional Missing Trader Intra-Community fraud and the misuse of the VAT Margin Scheme placing growing pressure on public finances. Conservative estimates indicate that annual VAT losses reach at least € 12.5 billion, underscoring the urgency of meaningful reform. Recent months have already seen a noticeable increase in enforcement activity across the EU, much of it coordinated by the European Public Prosecutor’s Office. Observers expect that this is only the beginning, with further action likely as authorities intensify their focus on VAT fraud. The secondary mobile sector also carries its own responsibility. When sourcing margin-scheme goods, companies should closely assess how credible the supplier’s VAT position and documentation truly are. And greater marketplace enforcement of VAT compliance could serve as an effective tool to help reduce fraud.

How carousel fraud operates

Carousel fraud remains the best-known VAT crime within the European Union. It exploits the zero-rating of Apple iPhone devices, electronics and other goods moving between Member States. The first trader acquires goods VAT-free from another EU country and sells them domestically while charging VAT. Instead of remitting that VAT, the trader disappears with the money. The goods can then be resold through multiple companies before the chain loops back to the beginning, allowing the cycle to continue. Losses from this scheme alone are estimated at € 12.5 to € 32.8 billion every year, depending on the complexity and duration of the network.

Why enforcement proves difficult

National authorities struggle to react quickly enough because the fraud is executed across borders within minutes. Information on intra-EU transactions often arrives only after a reporting period closes, which leaves enforcement teams examining historical data. The EU’s transitional VAT rules, in place since the formation of the Single Market, still rely on zero-rating cross-border supplies, creating a core vulnerability that criminals continue to exploit.

The growing threat of marginal VAT fraud

Alongside carousel fraud, governments are now confronting the quieter but increasingly damaging misuse of the VAT Margin Scheme. This regime is intended for second-hand, used and refurbished goods dealers to prevent double taxation. VAT is calculated only on the dealer’s margin, rather than the full sale price.

In the secondary mobile market European criminals distort this system by falsely classifying imported smartphones, from outside the EU, as privately sourced within the EU. Electronics, components and Apple iPhone devices are often declared as if purchased from private individuals, even when they were imported. Fraudsters may also undervalue goods or fabricate purchase records. In some cases, proceeds from carousel fraud are laundered through margin-scheme transactions to create the appearance of legitimate trading.

Why detection is so difficult

The Margin Scheme relies heavily on internal bookkeeping. Tax inspectors depend on the accuracy of the dealer’s purchase records, which makes falsification harder to uncover. Because VAT is not shown on the invoice, transparency is limited and buyers cannot easily verify whether the correct treatment was applied.

Digital reporting as the way forward

Brussels aims to seal these gaps through the VAT in the Digital Age package. Real-time digital reporting for intra-EU transactions would give authorities immediate insight into trading activity and narrow the timeframe in which fraud can take place. The European Commission estimates that this measure alone could save up to € 11 billion each year. For marginal fraud specifically, targeted real-time reporting for high-value goods is likely to become an essential tool. Enhanced EU-level audit powers would also support investigators in tracing false private-seller declarations and uncovering suspicious valuation patterns. SecondaryMarket.news notes that marketplaces have a crucial role as well. Even with strict compliance procedures in place, many legitimate merchants can point to cases where goods were sold under the margin scheme despite having clearly been imported from outside the EU.