VAT carousel fraud in the car trade: how to stay clear
VAT carousel fraud in the car trade explained: missing trader schemes, warning signs in cross-border deals, due diligence and liability for dealers.
· 7 min read
VAT carousel fraud in the car trade uses the VAT-free movement of cars between EU countries: a "missing trader" buys cars without VAT, sells them on with VAT and disappears without paying it. Honest dealers in the chain can lose their VAT exemption or deduction if they knew or should have known about the fraud. Checking partners, prices, payments and transport is the protection.
How does VAT carousel fraud work with cars?
Carousel or missing-trader fraud exploits the gap between a VAT-free intra-community supply and the VAT charged on the next domestic sale. A simple version in the car trade runs like this:
- Dealer A in country X sells VAT-qualifying cars net to company B in country Y as an intra-community supply.
- Company B, the missing trader, should self-account for acquisition VAT. It sells the cars to dealer C in country Y with VAT, collects that VAT and disappears without paying it.
- Dealer C, often a "buffer", deducts the VAT on B's invoice and sells on, sometimes back to country X, so the circle can start again.
The tax authority in country Y has paid out a deduction to C but never received the VAT from B. Because B can sell below market by pocketing the VAT, the cars appear in the market at prices honest dealers cannot match.
Cars are attractive to fraudsters because they are high-value, easy to identify on paper and easy to sell. A variant common in the motor trade is the misuse of the margin scheme: a VAT-qualifying car is invoiced as a margin car, so no VAT is collected on the full price. The Court of Justice case Litdana (C-624/15) concerned Danish cars invoiced with margin and exemption references.
What are the warning signs of a missing trader?
The warning signs of a missing trader are usually visible in the price, the company and the money flow. Watch for:
- Price below market. Net prices that are lower than other dealers can buy at, for no visible reason such as damage or high mileage.
- New or dormant companies. A recently registered company, or an old shell that suddenly trades in cars, with no premises, staff or history.
- Recently issued VAT number. Valid in VIES, but issued weeks before the first deal.
- Unusual payment routes. Payments from or to third parties, accounts in a different country, or requests for cash.
- Chain sales without the cars. The cars are never seen, move on the same day or are sold "on paper" while standing at a compound.
- Documents that do not match. Name differences between VIES, invoice and CMR, CMRs signed by unknown persons, or copies only.
- VAT status games. Requests to invoice a net car as margin, or vice versa.
None of these proves fraud alone, but each one should trigger questions, and several together should stop the deal.
For car dealers
Know your margin before you buy
MyCarDealer compares any car from an auction or listing with the market in your country and shows the net margin after VAT, transport and costs – and the maximum bid.
Request accessHow to check the price against the market
A price far below the market is the single most reliable warning. Compare it with current retail and trade prices for comparable cars in your country and in the seller's country. For example, according to listings tracked by MyCarDealer in Germany in October 2026, 54 BMW X3 diesels from 2021–2022 had a median asking price of €33,890. A German buyer offered such cars at €24,000 net, i.e. €28,560 including 19% VAT, should ask why a seller is leaving that much on the table, especially if the cars come in volume.
MyCarDealer shows the market price of comparable cars in your country from current listings, so an implausible offer stands out in seconds; you can check one car with the free valuation.
Can an honest dealer lose VAT deduction because of a fraudulent supplier?
Yes, if he knew or should have known. The Court of Justice ruled in Kittel and Recolta (C-439/04 and C-440/04) that a taxable person who knew or should have known that his purchase was connected with VAT fraud must be regarded as a participant, and national courts must refuse his deduction, whether or not he profited.
On the selling side, Teleos (C-409/04) protects a supplier who acted in good faith and took every reasonable measure, while the exemption can be refused where he knew or should have known of the fraud. Germany has codified both sides in § 25f UStG, which denies the intra-community exemption and the input VAT deduction where the business knew or should have known it was involved in VAT evasion at another stage of the chain.
Article 205 of the VAT Directive also allows member states to make a person other than the one liable for VAT jointly and severally liable for it.
The practical test is what a careful dealer would have done. Tax authorities and courts look at the steps you took before the deal, not at what you say afterwards.
What due diligence should dealers do on new trading partners?
Due diligence means checking the business, the deal and the money before the first car moves, and keeping the evidence. A workable standard for a new cross-border partner:
| Check | Evidence to keep |
|---|---|
| Company exists and trades in cars | Company register extract, website, photos of premises |
| VAT number valid | VIES check with consultation number on each deal |
| Identity of the person you deal with | ID copy, authority to act for the company |
| Price is plausible | Market comparison saved with the deal |
| Cars physically exist | Your own inspection or independent inspection report |
| Payment from or to the company's own business account | Bank statement |
| Transport is real | CMR, carrier invoice, proof of intra-community delivery |
| VAT status is correct | Origin of the car, invoice wording |
For repeat partners, re-check the VAT number on every deal and update the register extract periodically. A partner who resists reasonable checks has given you your answer.
What to do if you suspect fraud
If something does not add up, stop before money or cars move. Then:
- Do not complete the deal on the terms offered.
- Document what you saw and why you stopped.
- If you already traded with the partner, review past deals with your tax adviser.
- Consider informing your tax authority; many have dedicated contacts for VAT fraud.
Turning down a cheap batch of cars feels like lost profit. Compared with losing the VAT deduction or paying VAT on sales you thought were exempt, it is cheap insurance. The conditions for clean VAT-free sales are summarised in intra-community supply of cars.
Frequently asked questions
How does VAT carousel fraud work with cars?
Cars are sold VAT-free to a company in another member state, which sells them on with VAT and disappears without paying it. The next buyer deducts the VAT, so the state loses the tax, and the cars can circulate through several countries.
What are the warning signs of a missing trader?
Prices below market, newly registered or dormant companies, recently issued VAT numbers, payments through third parties, cars that are never seen, mismatched documents and requests to change the VAT status of a car.
Can an honest dealer lose VAT deduction because of a fraudulent supplier?
Only if he knew or should have known of the fraud, according to the Court of Justice in Kittel. A dealer who took every reasonable step to check his partner and the deal keeps his rights.
What due diligence should dealers do on new trading partners?
Check the company register, the VAT number in VIES, the identity of the contact person, the plausibility of the price, the physical existence of the cars, the payment account and the transport documents. Keep all evidence with the deal file.
Is the margin scheme also used for fraud?
Yes. Invoicing VAT-qualifying cars as margin cars avoids VAT on the full price. Dealers who buy such cars should check where the car came from, because the margin scheme can be refused if they did not act in good faith.