An ISA-Based Audit Framework for Assessing Taxpayer Due Diligence in VAT Fraud

This article examines the legal indeterminacy of the Court of Justice of the European Union (CJEU) “knew or should have known” standard (Kittel), which exposes bona fide taxpayers to significant legal uncertainty in cases of VAT fraud. In response, the study proposes the ISA-Kittel Due Diligence Framework, an interdisciplinary synthesis of the Fraud Triangle, Gatekeeper Theory and International Standards on Auditing (ISA 240, 500 and 550). Using an extended Missing Trader Intra-Community (MTIC) fraud case study, the framework reconceptualizes taxpayers as involuntary gatekeepers and operationalizes due diligence as a procedural obligation focused on managing identifiable fraud opportunities. The findings demonstrate that anchoring taxpayer conduct to contemporaneous auditing protocols mitigates hindsight-driven attributions of knowledge. The study’s primary contribution lies in translating an abstract legal criterion into a measurable, audit-based protocol that reconciles VAT enforcement with the principle of proportionality, offering a harmonized mechanism for evidencing good faith within the EU tax system.