Multiple VAT Assessments: When the State Earns Several Times on One Chain

The state may recover its loss. It may not turn a fraud into a profit centre.

VAT is designed as a tax on consumption: at the end of the chain, the final consumer is meant to bear the tax exactly once. In carousel fraud proceedings, that design is stood on its head. Where VAT has been evaded somewhere in a supply chain, tax authorities today deny input VAT deduction and zero-rating to several chain members at the same time. The same commercial transaction is taxed again and again – and the state’s total take exceeds its actual loss many times over. This page does the arithmetic, traces the case law that allows it, and sets out the counter-forces now building in the legislative record, in scholarship and in recent German court decisions.

The arithmetic: a €190,000 loss becomes €1,187,000 of state revenue

Wolfram Reiß, one of Germany’s leading VAT scholars, published the calculation that has since become the reference example of the criticism. The starting point is sober: in one supply chain, a participant evades VAT of €190,000. That is the loss. The treasury is not short one euro more.

Then the denial mechanism of Section 25f of the German VAT Act (UStG) kicks in – not once, but at several links of the chain simultaneously. The other chain members, who allegedly knew or should have known of the fraud, lose their input VAT deduction and their zero-rating. The cascade in Reiß’ example:

• Stage 1: €217,500 of additional tax from the first denial,
• Stage 2: €190,000 from the second,
• Stage 3: €597,000 from the third,
• Stage 4: €182,500 from the fourth.

Total: €1,187,000 of additional revenue – more than six times the evaded amount. And “additional” is meant literally: the evaded tax itself remains assessed against, and is pursued from, the actual perpetrator. Reiß’ finding: there is no corresponding final consumption behind this windfall; nothing is being compensated here – a multiple of the loss is being skimmed. A second example adds the cross-border twist: German tax revenue of €36,563 arises solely because Italian VAT was evaded in Italy. Dr Fabian Keller put the same mechanics plainly in a German business-daily piece: six companies in a chain of seven can end up paying a combined 114 per cent VAT – six times 19 per cent. And since the summer of 2025 the cascade can grow by yet another layer: the same tax may be collected once more through joint and several liability, without the administration having to choose between denial and liability.

In short: the chain pays repeatedly. The loss arose once.

How it became possible: the Italmoda line

The foundation was laid by the Court of Justice of the European Union in Italmoda. The Court held that a trader who knew or should have known of his involvement in evasion can be refused every right under the VAT system – deduction and exemption – even without an express national legal basis. That the same supply is thereby burdened twice was accepted as part of the intended deterrence.

In Finanzamt M, the Court confirmed the second hardship in 2022: the denial need not be capped at the amount of the tax loss and may be imposed several times along one chain. The line continues: in 2025, the Court ruled again on chain-denial constellations in KONREO and FLO VENEER – the mechanism remains armed, even though FLO VENEER also recalls that formal evidentiary shortcomings alone cannot justify denial. The Italmoda doctrine has meanwhile even reached the European Court of Human Rights. For the statutory framework on which these consequences hang in Germany, see our page on Section 25f of the German VAT Act.

Why this is not the last word: four counter-forces

Fighting fraud is necessary. But deterrence is not a basis of assessment. Four arguments stand against multiple recovery – and each belongs in every German administrative appeal (Einspruch) where the state collects more than it lost.

1. The German legislator’s own words

The explanatory memorandum to Section 25f UStG promises: the denial of rights is capped at the amount of the tax loss arising in the supply chain. German commentators Vobbe and Pötters have drawn the consistent conclusion: the chain members may be treated, at most, as a single body of joint and several debtors for one loss. An assessment that collects more than the loss overrides the declared intention of the very legislator who wrote the rule – not a rhetorical point, but a first-order argument of statutory interpretation.

2. The “double sleight of hand” and the ban on over-compensation

Doctrinally, the whole construction stands on thin ice. Vobbe/Pötters describe it as a double sleight of hand: lacking any basis in secondary EU law, the Court of Justice rested its case law on a primary-law principle – and because no liability rule could be built from that, it established an exclusion of rights instead. Where over-compensation occurs and the trader was not actively involved, the boundary between tax law and criminal law is no longer respected; VAT becomes an instrument of punishment without criminal-law safeguards. This is where the ban on over-compensation bites: denial – if at all – only up to the loss, and only subsidiary to recovery from the actual perpetrator.

The counter-authority has been on the books since the summer of 2025 – and fairness requires putting it on the table. In KONREO, the Court of Justice expressly approved the cumulation: denial of input VAT deduction and joint and several liability pursue “two different and complementary objectives” and may be applied side by side; the denied deduction is not transferred to the person held liable. The over-compensation critique of Reiß and Vobbe/Pötters is not thereby refuted – but it now faces a sitting counter-voice from Luxembourg, and any defence must know both. The only brake the judgment itself names is the proportionality review in the individual case. That is exactly where the defence starts.

3. Liability instead of denial: the milder instrument is already in the statute book

German law contains, in Section 71 of the Fiscal Code (AO), an instrument that achieves precisely what denial claims to achieve: whoever participates in tax evasion is liable for the evaded tax – capped at the loss, accessory, subject to a discretionary decision. Reiß’ legislative proposal is therefore to repeal Section 25f and replace it with a liability solution. Even readers more sympathetic to the provision cannot avoid the proportionality question: why deny rights several times over when a loss-capped joint liability would do? Vobbe/Pötters consider liability for the tax loss “entirely sufficient” even in cases of heightened negligence.

Except that the liability track itself keeps growing. In late 2025, in Vaniz, the Court of Justice allowed joint and several liability to be enforced even after the tax debtor’s insolvency and deletion from the register – but the condition remains the authority’s full proof that the person held liable knew or should have known that the tax would not be paid. In late 2024, in Dranken Van Eetvelde, the Court had already approved full liability without any apportionment by contribution and without crediting the tax debtor’s input VAT deduction; different tax years, it added, are not the same matter (“idem”) for double-jeopardy purposes. And where a triangular transaction fails, the General Court of the European Union held in the D GmbH case (February 2026) that the cumulated burden of the punitive acquisition tax in the state of the VAT ID used and the tax owed on the incorrectly invoiced VAT remains permissible; only an invoice correction provides a cure. If you have received a liability notice on top of a denial assessment, our page on liability under Section 71 AO: when the tax office collects the same tax a second time sets out the lines of defence.

4. The German courts’ ban on double burdening

While Luxembourg tolerates multiple denial, Germany’s two supreme courts have drawn remarkable lines at a neighbouring junction – where taxation meets criminal confiscation of assets. The Federal Fiscal Court (Bundesfinanzhof) held in 2024 that amounts confiscated in criminal proceedings reduce the VAT base; tax already assessed must be corrected. The Federal Court of Justice (Bundesgerichtshof) clarified twice in the same year that criminal confiscation of the proceeds and recovery of the “saved” tax must not be stacked – the constitutional ban on double burdening applies. Spatscheck and Spilker take it one step further: the correction must not wait for a final confiscation order, but applies as soon as a provisional asset freeze is enforced – otherwise the trader carries both burdens for years. The underlying principle generalises: if the state may not take the same amount twice via confiscation and tax, it is hard to explain why it may take it six times via denials.

Who the cascade hits: not the perpetrator, but the chain

The bitter irony of the mechanism: the missing trader who evaded the tax is usually gone or penniless by the time the administration moves. The cascade lands on those still standing – the buffers and brokers, precisely the companies with substance, accounts and attachable assets. They are not accused of evading anything; they are accused of having failed to notice something. A negligence allegation thus becomes a payment obligation amounting to a multiple of what the actual perpetrator took from the treasury.

Reiß has described a second knock-on effect that practice underestimates: Section 25f “multiplies” the evasion allegations themselves. Whoever, in the administration’s view, should have declared the denial has – from the authorities’ perspective – filed a fresh incorrect return with every unchanged VAT filing since. The denial cascade therefore generates not only tax claims but a series of new criminal hooks. All the more important is a clean separation of the two levels: what is denied in tax terms is far from evaded in criminal terms – the criminal-law blocking effect of Section 25f draws lines here that no defence should be without.

What this means for affected businesses

Multiple recovery is not fate. It is a checklist.

• Draw up the chain balance sheet: Which chain members have already been pursued – by assessment, secondary-liability notice, confiscation, asset freeze? The administration will not volunteer this aggregate picture. Demand it.
• Plead the loss cap: The legislative memorandum, the ban on over-compensation and the joint-debtor concept belong in every appeal where the take exceeds the loss.
• Correct double burdens: Where confiscation or an asset freeze is enforced, file correction applications immediately – on the better view, from enforcement of the freeze, not only after final judgment.
• Defend liquidity: Multiple recovery bites through enforcement and the asset freeze under Section 324 of the Fiscal Code long before any court has ruled. Suspension of enforcement (Aussetzung der Vollziehung) and a security strategy decide commercial survival.

One thing this defence does not do: it does not replace proof of your own diligence. A business with no answer to the “should have known” allegation is left arguing only about the amount. A business that defeats the allegation argues about everything. Both together – contesting the conditions and capping the consequences – is the complete defence.

Source box

Case law (CJEU/ECtHR): - CJEU, judgment of 18 December 2014 – C-131/13, C-163/13 and C-164/13, Schoenimport “Italmoda” Mariano Previti and Others, ECLI:EU:C:2014:2455. - CJEU, judgment of 24 November 2022 – C-596/21, Finanzamt M, ECLI:EU:C:2022:921. - CJEU, judgment of 12 December 2024 – C-331/23, Dranken Van Eetvelde, ECLI:EU:C:2024:1027, paras 36, 45, 53–56. - CJEU, judgment of 10 July 2025 – C-276/24, KONREO, ECLI:EU:C:2025:554, paras 44–46, 50 (key passage at para 45). - CJEU, judgment of 13 November 2025 – C-639/24, FLO VENEER, ECLI:EU:C:2025:888. - CJEU, judgment of 11 December 2025 – C-121/24, Vaniz, ECLI:EU:C:2025:957, paras 33 et seq., 47. - General Court of the European Union, judgment of 25 February 2026 – T-638/24, D GmbH (Finanzamt Österreich), ECLI:EU:T:2026:157. - ECtHR (Fourth Section), decision of 23 September 2025 – Italmoda Mariano Previti and Others v. the Netherlands, application no. 16395/18 (application unanimously declared inadmissible; notified in writing on 16 October 2025).

Case law (Germany): - Federal Fiscal Court (BFH), judgment of 25 September 2024 – XI R 6/23 (confiscated amounts reduce the VAT base; case note Spatscheck/Spilker, UR 2025, 244–248). - Federal Court of Justice (BGH), 7 March 2024 – 1 StR 438/23 (no confiscation of saved tax expenses alongside the proceeds; cited from Spatscheck/Spilker, UR 2025, 247). - Federal Court of Justice (BGH), order of 28 November 2024 – 1 StR 340/24, NStZ-RR 2025, 79 (ban on double burdening; cited from Schützeberg, PStR 2025, 199 et seq.).

Statutes and materials: - Section 25f UStG (German VAT Act); Section 71 AO (German Fiscal Code); Sections 10(1), 17(1) UStG; Article 1(2) of the VAT Directive 2006/112/EC (consumption-tax principle). - Government bill (Annual Tax Act 2019), Bundestag printed paper BT-Drs. 19/13436 (cap at the tax loss; cited from Vobbe/Pötters, UR 2023, 777 [783]).

Literature (German-language): - Reiß, UR 2020, 408 (409–411: worked examples; 415 et seq.: liability solution under Section 71 AO). - Vobbe/Pötters, UR 2023, 777 (783 et seq.: over-compensation ban, joint debtors; 784: “double sleight of hand”). - Spatscheck/Spilker, UR 2025, 244 (245 et seq., 247). - Spilker, UR 2025, 521 (525 et seq.: correction from enforcement of the asset freeze). - Schützeberg, PStR 2025, 199 (199 et seq.).

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