Entrepreneurs must take precautions
As an entrepreneur, you are expected to check whether or not your business partners are trustworthy. After all, you safeguard your own financial position by checking product quality, delivery reliability and solvency. In the same way, you should assess your business partner’s integrity in tax matters.
In many of its rulings, the Court of Justice of the European Union has stated that self-employed individuals must make every effort to avoid becoming involved in fraudulent activities.
Characteristics of fraudulent activities
When you are buying something, consider the matters listed below when assessing your business partner’s integrity in tax matters. You may be dealing with the shadow economy if:
- You receive offers that are too good to be true – without even asking.
- The seller is a new, recently established or recently registered company with no financial or trading history.
- The batches sold are large compared to the seller’s past business activities.
- The company or its representative does not have sufficient knowledge of the product or the market.
- The company’s contact people or people in charge do not change, but the company or its contact or bank account information change repeatedly.
- The company does not change, but the contact people or people in charge change, and the price drops significantly at the same time.
- The seller insists that even large amounts should be paid in cash.
- You are asked to pay to a third party or into a foreign bank account.
- You are asked to divide the payment between various bank accounts.
- Payment arrangements seem strange or suspicious.
- The company is not found in the VAT register despite its extensive business activities.
Please note that these aspects do not directly indicate that you are dealing with the shadow economy. However, if you suspect your trading partner’s integrity, check their background carefully and refuse to do business with them if necessary. Report your observations to the Tax Administration on the tax evasion report form.
What happens if you do not meet your obligation to perform checks?
If your trading partner has not filed or paid VAT on purpose, the Tax Administration will assess whether or not you took sufficient precautions before doing business with them.
If not, you may have to pay the missing VAT even if you did not intentionally participate in the other party’s fraudulent activities. This may happen even if you have not received any financial gain from the other party’s VAT fraud.
The consequences are different depending on your role:
- If you are the buyer, you may lose the VAT deduction on your purchase.
- If you are the seller, your VAT-exempt sales may be regarded as VAT-liable.