VAT Refund Fraud in Poland

Last updated: 09.02.2026

Introduction: Understanding VAT Refund Fraud

VAT refund fraud involves the submission of false or manipulated information in tax returns to unjustly obtain VAT refunds from the state budget. This practice is particularly common in complex supply chain schemes, such as so-called “VAT carousels”, involving multiple domestic and foreign entities.

It is a highly profitable form of economic crime, frequently orchestrated by organized criminal groups. The significant financial gains associated with VAT fraud have led to its spread, despite increasing control from Polish authorities. It’s important to point out that due to number of entity involved in “carousels” especially that some of the entities are legally running businesses it is really hard to detect those crimes.

Recognizing the scale of the problem and the substantial losses it inflicts on the state budget-amounting to billions of PLN annually-the Polish legislator has taken decisive action. In recent years, the government has implemented stricter legal measures, including the classification of serious VAT fraud as a criminal offense punishable by up to 25 years of imprisonment. These measures aim to disrupt fraudulent supply chains and discourage potential offenders.

While law enforcement and tax authorities continuously adapt and improve their detection tools-such as the STIR system, JPK (Standard Audit File for Tax), and enhanced cross-border cooperation-businesses must also play an active role in prevention. Even unintentional involvement in fraudulent chains can have severe legal and financial consequences.

Understanding how VAT refund fraud operates and how to mitigate associated risks is essential for companies seeking to do business securely and compliantly in Poland.

Businesses must be aware of risk and their obligations to manage all business operations due required by law care, to avoid being unconsciously involved in vat carousel which may result in criminal liability.

Legal Framework and Penalties

Criminal Code Provisions

There was a big amendments in the vat fraud law stated in Criminal Code especially in possible imprisonment time in year 2022, that time articles concerning broadly understood invoices frauds was enhanced even to 25 years of imprisonment. Mostly length of prison sentence depends on the value of vat frauds especially the amount of losses of state budget have been reduced as a result of vat fraud.

Under the Polish Criminal Code, particularly Article 277a, fabricating or using fraudulent invoices exceeding PLN 10 million can result in imprisonment ranging from 5 to 25 years. 

Additionally, Articles 270a and 271a address material and intellectual forgery of invoices, with penalties including imprisonment from 6 months to 8 years, escalating to 3 to 15 years for amounts exceeding PLN 5 million or if the act is a regular source of income.

Fiscal Penal Code

The Fiscal Penal Code complements the Criminal Code by addressing offenses such as submitting false declarations (Article 56), issuing unreliable invoices (Article 62), and unjustified tax refunds (Article 76). Penalties include fines up to 720 daily rates, imprisonment up to 5 years, or both.

Common Tax Fraud Schemes

Carousel Fraud

This scheme involves a series of transactions where goods are sold through multiple companies across borders, with the aim of creating a chain of VAT refunds while the actual VAT is never remitted to the tax authorities.

Missing Trader Intra-Community (MTIC) Fraud (missing trader fraud)

In MTIC fraud, a trader imports goods VAT-free from another EU country and sells them domestically with VAT, but then disappears without remitting the VAT to the government, leaving subsequent buyers to claim refunds on VAT that was never paid.

Mechanism of a VAT Carousel – Typical Carousel Scheme

VAT carousel fraud (also known as Missing Trader Intra-Community fraud, or MTIC) often follows a structured and repeated pattern involving multiple actors operating across at least two European Union Member States. The scheme uses the rules of intra-community supplies, which allow for zero-rated VAT treatment when goods are sold cross-border between VAT- registered businesses.

Below is a typical arrangement involving four key entities:

Entity A (Initial Seller – Legitimate Exporter):

A fully legal, VAT-registered company based in one EU country. Entity A sells goods to Entity B, located in another Member State. As per EU VAT rules, this intra-community supply is taxed at 0%, and Entity A properly records and reports the transaction.

Entity B (Missing Trader):

Entity B receives the goods and sells them domestically within its own country, charging standard VAT on the invoice. However, it does not remit this VAT to the tax authorities and typically disappears (hence the term “missing trader”). This creates a direct loss to the state’s budget.

Entity C (Buffer or Distributor – Final Seller):

After passing through a chain of middleman companies (often intentionally inserted to obscure the trail), the goods are eventually sold by the last entity from Entity C category. Entity C sells the goods cross-border again to another EU country – often back to a company related to Entity A – under the 0% VAT rate as an intra-community supply.

Entity C (VAT Refund Claimant):

Crucially, Entity C, having purchased the goods domestically with VAT included, now claims a VAT refund from its national tax authority. The refund is based on the 0% taxed intra-community sale, and Entity C argues it is entitled to recover the VAT incurred on the original purchase. However, the VAT was never actually collected by the authorities because Entity B failed to pay vat. As a result, the state refunds non-existent VAT – a core feature of the fraud.

Note:

In many cases, the goods may never exist or never physically cross borders. Fraudsters often falsify shipping documents or simulate real transactions to create the illusion of legitimate trade. Sophisticated schemes may involve legal businesses or seemingly compliant operations to mask fraudulent intent.

Compliance and Risk Mitigation

Due Diligence

Companies must exercise due diligence in their operations, including verifying the legitimacy of business partners and monitoring employee activities. Failure to do so can result in liability, even if the company was unaware of fraudulent activities.

Internal Controls

Implementing efficient internal controls, such as regular audits and compliance checks, can help detect and prevent fraudulent activities.

Utilizing external experts for audits and legal advice further strengthens a company’s defense against potential fraud.

Defense Strategies

Voluntary Disclosure

If a company identifies potential fraudulent activities, voluntarily disclosing this information to the authorities can mitigate penalties. The Polish legal system allows for reduced sentences in cases where the offender cooperates with investigations and rectifies the wrongdoing.

Legal Representation

VAT refund fraud is a common form of tax crime across EU Member States, exploiting gaps in the EU’s VAT system and the customs union. Complex cross-border transactions, often linked to trader fraud and organised criminal networks, involve manipulation of the VAT portion, particularly in input VAT claims and zero-rated supplies.

To avoid tax liability, criminal proceedings, and exposure to legal risks, businesses must enforce strict diligence procedures, monitor red flags, and verify charging VAT obligations-especially in sectors prone to missing trader fraud.

Engaging experienced legal counsel is essential in navigating investigations and proceedings related to VAT fraud. Legal experts can assist in developing defense strategies, negotiating with authorities, and ensuring compliance with legal requirements. The first procedural steps taken in relation to a suspect are extremely important and crucial for the further defense strategy.

FAQ: VAT Refund Fraud in Poland