Background
The European Public Prosecutor’s Office (EPPO) recently opened a criminal investigation against a non‑EU multinational company for alleged VAT evasion amounting to EUR 80 million. The company operates an online platform through which retailers sell directly to consumers across Europe. Assuming that VAT obligations rested with individual traders, the company did not file VAT returns in Germany. The German tax investigation office, however, classified the business model as proprietary trading and therefore considered the company itself liable for VAT.
On suspicion of cross‑border VAT evasion, EPPO conducted dawn raids in Germany and several other EU Member States. At EPPO’s request, a German local court imposed an asset freeze of EUR 80 million to secure potential confiscation of alleged criminal proceeds stemming from the alleged tax evasion. EPPO justified the order by highlighting the company’s non‑EU headquarters and the risk of assets being transferred outside the EU. The amount was based on EPPO’s turnover estimates for the business years 2017–2024.
The freeze had an immediate and severe operational impact. In particular, the blocking of online payment accounts used for customer transactions made sales to German consumers nearly impossible. Acting on behalf of the company, Baker McKenzie entered into negotiations with EPPO and submitted evidence demonstrating how the freeze jeopardized the company’s liquidity and outlining the minimum release necessary to avert insolvency.
Outcome of Negotiations
Following several negotiation rounds, EPPO agreed to lift the freeze on the company’s online payment account – critical for maintaining operations – without requiring any upfront payment. This represented a significant concession in light of the alleged EUR 80 million liability and the company’s non‑EU domicile. Instead, EPPO requested monthly payments of EUR 300,000 toward the alleged VAT debt and ongoing VAT filings, expressly without any acknowledgment of liability.
Key Takeaways
- Enforcement Speed and Cross‑Border Reach: EPPO acted with exceptional speed, moving to monitor and freeze EU‑based and international accounts of the company within days of opening the investigation – far more quickly than is typically feasible in comparable national proceedings.
- Shared Competences: While EPPO assumed competence for alleged VAT offences committed after 2017, a local German tax authority retained responsibility for pre‑2017 conduct. Throughout the investigation, EPPO served as the primary point of contact while coordinating closely with the German authority. The division of competences between the authorities, thus, did not result in any additional procedural burden for the defence.
- Willingness to Negotiate: From the outset, EPPO demonstrated a consistent willingness to discuss the proportionality of measures securing the alleged tax liability. Nonetheless, negotiations with the German Delegated Prosecutor in charge were slowed by EPPO’s hierarchical structure: any understandings reached on the basis of the negotiations with the German Delegated Prosecutor also required approval from the supervising European Prosecutor, who did not always concur with the Delegated Prosecutor’s assessments. Several rounds of negotiations were therefore necessary before an approach acceptable to both sides could be agreed upon. This structural feature of the EPPO must accordingly be factored into the defence’s timeline from the outset.
