Cross-border investigation highlights compliance and due diligence pressures for PSPs
The European Public Prosecutor’s Office (EPPO) has led a coordinated enforcement operation into a suspected €10 million VAT carousel fraud scheme, resulting in six arrests and the seizure of high-value assets and funds in Germany and Portugal.
Authorities conducted 28 searches across company premises in Leipzig, Berlin and Munich in March, followed by further arrests and residential searches in Lisbon in June.
According to an EPPO release datedJune 27, three additional suspects were apprehended in Portugal earlier that week, bringing the total number arrested to six.
The operation involved the Tax Investigation Office in Leipzig, Berlin and Munich, as well as local police and Germany’s Financial Intelligence Unit (FIU). Authorities seized over €1 million in gold, cash and luxury watches, and froze €2.2 million in accounts held in Germany.
The EPPO suspects those arrested were part of an organised crime group exploiting EU VAT rules, which allow goods traded between member states to be exempt from value-added tax. The investigation is ongoing, and all individuals are presumed innocent until proven guilty under German law.
VAT fraud remains a persistent challenge for the EU
VAT carousel fraud, also known as missing trader intra-community (MTIC) fraud, typically involves a chain of businesses trading goods across borders without paying VAT. One company in the chain disappears without remitting VAT to tax authorities, while another claims a refund.
The European Commission has previously estimated carousel fraud costs EU member states billions of euros each year. A 2022 Commission report on the VAT gap put annual losses due to fraud and evasion at approximately €93 billion across the EU.
Speaking in relation to the broader VAT enforcement effort, Laura Kövesi, the European Chief Prosecutor, has called VAT fraud “one of the most damaging types of financial crime against the EU budget”.
Regulatory scrutiny sharpens on payment intermediaries
Although no payment service providers (PSPs) or financial institutions have been named in the current investigation, the case may raise questions for firms facilitating cross-border transactions involving VAT-exempt goods.
Financial institutions operating in the EU already fall under PSD2, AMLD5 and national-level tax cooperation frameworks. The involvement of the German FIU and the use of account freezes in this case highlights the growing role of anti-money laundering (AML) infrastructure in detecting tax fraud.
While PSPs are not tax authorities, they may be expected to detect or report activity that fits emerging financial crime typologies. EU regulators have recently emphasised the role of payments infrastructure in identifying risks linked to trade-based money laundering, shell company activity and suspicious invoice flows.
Several tax authorities in the EU have also indicated plans to expand the use of real-time data and e-invoicing systems to better monitor cross-border VAT compliance.
Future outlook for the payments sector
Payments firms operating across multiple EU jurisdictions may find themselves subject to additional due diligence requirements as the regulatory response evolves.
The investigation also adds momentum to policy discussions around the role of financial intermediaries in supporting tax transparency initiatives.
Earlier this year, the European Commission opened consultation on an updated directive (DAC8) that would require digital platforms and certain payment operators to report cross-border income and transactions to tax authorities.
For now, the EPPO has stated it will continue to work with national tax and financial intelligence units to determine the full extent of the criminal activity in the case.
