Cyprus joins EPPO investigation into suspected €15.7m VAT fraud scheme

Nicosia, Cyprus. Cypriot authorities took part in a European Public Prosecutor’s Office investigation into suspected large-scale VAT fraud involving the online sale of new mobile phones.

Investigations in Cyprus focused on five companies and one residence in Nicosia and Larnaca, where authorities collected and seized evidence and electronic data.

Cross-border operation

The European Public Prosecutor’s Office said searches, arrests and asset freezes were carried out in Austria, Bulgaria, Cyprus and Germany.

Four suspects were arrested, including three in Bulgaria and one in Germany. An investigative court issued asset-freezing orders worth about €20.5 million against two suspects and two companies.

Suspected VAT margin scheme

The investigation concerns a suspected VAT margin fraud scheme involving new mobile phones sold to consumers in Germany.

The VAT margin scheme is a special tax arrangement under which VAT is paid only on the seller’s profit margin rather than the full sales price. It is intended to prevent double taxation when second-hand goods are resold.

Applying the scheme to new goods that do not qualify for it can result in significant losses to public revenue.

Companies in three countries

According to the investigation, the suspects established a cross-border trading structure involving companies in Bulgaria, Cyprus and Germany to enable the alleged unlawful application of the VAT margin scheme to new mobile phones sold online in Germany.

Evidence gathered indicated that mobile phones passed through a chain of companies controlled by the suspects before being sold by German online retailers to end customers. The arrangement allegedly created the appearance that the phones qualified for the VAT margin scheme, with VAT calculated only on sellers’ profit margins instead of the phones’ full value.

The investigation found that the two main suspects, a Bulgarian couple, organised and controlled the companies used in the alleged fraud and applied the unlawful VAT rules across the supply chain.

The suspected scheme is estimated to have caused VAT losses exceeding €15.7 million. The final amount remains subject to ongoing investigations.