For most business owners, the term “VAT investigation” sounds like something that happens to others. Until it happens to you. A suspicious phone call, a sudden visit to the office, or a seemingly innocent request to hand over documents — and suddenly you’re in the eye of the storm.
VAT investigations are not only a bureaucratic nuisance, but can lead to criminal sanctions, heavy fines, and even the closure of a business. So what really happens when the VAT comes knocking on the door, and how can you get out of this situation without losing everything?
What exactly is a VAT investigation?
A VAT investigation is conducted when the Tax Authority suspects that a trader has committed tax offenses in the field of value added tax. This can include, among other things:
- False or inflated reports in periodic reports
- Unlawful input tax deduction
- Using fictitious invoices to reduce tax liability
- Failure to submit periodic reports
- Transaction hiding
The goal of the investigation is to understand whether this is a technical error, a misunderstanding – or a deliberate attempt to defraud the state. Unfortunately, in most cases, the tax authorities assume that this is intentional.
How an investigation begins – and how it develops
Typically, a VAT investigation begins covertly, starting with the detection of anomalies in the periodic reports and numerous databases, a whistleblower, or as part of a broader investigation of a business network aimed at committing sophisticated fraud. Once investigators open a case, they may take aggressive steps:
- A surprise inspection of a business to seize evidence
- Search a home to locate and seize documents
- Foreclosure of bank accounts, real estate assets and funds held by clients
- Interrogation under warning and option for days of detention for interrogation purposes
- Confiscation of documents and reports
- Investigation of employees, customers and suppliers
In other words: this is not the time to improvise.
5 things not to do when a VAT investigation begins and becomes public
- Do not consult a lawyer. – Trying to handle this alone could be costly. This is not a friendly conversation, this is a criminal investigation with criminal consequences.
- Submitting documents without understanding the context – any document may become evidence against you.
- Lying to investigators – even a half-truth can be considered obstruction of an investigation.
- Trying to “settle it” with the clerk – no, it’s not like closing a corner with a parking inspector.
- Panic – Even though it is stressful, your reaction can affect how the investigation will proceed.
When should you consider a ransom arrangement?
In many cases, after an investigation, when the authority has already established its findings regarding the dealer, there is the possibility of a settlement by filing a request to convert the criminal proceedings into a monetary ransom – paying the monetary ransom, if received, will replace filing an indictment against the dealer and conducting a criminal proceeding. This is not always cheap, but it can certainly save emotional distress, negative publicity, and a grueling legal process. To consider this correctly, you need to understand:
- Are the offenses in which the suspect is involved appropriate for this procedure?
- Is there conclusive evidence against you? How serious is it?
- What is the amount of the offense and the damage to the state treasury?
- Is there good cause for terminating the arrangement?
Frequently Asked Questions about VAT Investigations
- Does every VAT audit become an investigation?
No. A routine audit is not necessarily an investigation, but it can lead to the opening of an investigation if problematic findings are found.
- What happens if I refuse to cooperate?
Investigators can use legal tools to obtain information – including search warrants, arrest warrants, media research warrants, and many other tools.
- Can this be closed without a lawyer?
Technically – maybe. In practice – very dangerous. An experienced lawyer knows how to identify weak points in the investigation and save the situation.
- If it is a mistake – is that enough to close the case?
Not necessarily. You will have to prove your version in the clearest and most profound way that will convince them.
- Does the Tax Authority act objectively?
Let’s put it this way: The Tax Authority sees first and foremost the good of the state in aspects of tax collection. You will have to explain your side.
How do we get out of this safely?
The short answer: With professional advice, calculated transparency, and proper risk management. The long answer: It depends on the case, but if you act correctly from the first step – there is a good chance of minimizing damage, perhaps even getting out of the matter without a conviction or fine.
And finally, perhaps the most important tip: Don’t wait for an investigation to start managing your business books properly. Because when the IRS is already knocking, that’s not the time to discover that you’re missing documents.
