Four arrested in €15.7m mobile phone VAT fraud investigation

European prosecutors have arrested four people and frozen millions of euros in assets as part of an investigation into an alleged cross-border VAT fraud involving online sales of new mobile phones.

The European Public Prosecutor’s Office (EPPO) said searches were carried out in Germany, Austria, Bulgaria and Cyprus as investigators examined a suspected scheme that allegedly allowed new handsets to be sold using VAT rules intended for second-hand goods.

Four suspects were arrested three in Bulgaria and one in Germany. Business premises and private homes connected with suspects and companies under investigation were searched.

A Frankfurt court also issued asset-freezing orders worth around €20.5 millionagainst two suspects and two companies.

According to the EPPO, bank accounts, mobile phones and luxury watches were among assets seized during the operation. It said €3.3 million had already been recovered from one of the companies under investigation.

Margin scheme allegedly used for new phones

At the centre of the investigation is the VAT margin scheme.

The scheme allows qualifying second-hand goods to be sold with VAT calculated on the dealer’s profit margin rather than the full selling price. It is designed to prevent VAT effectively being charged twice as goods pass through the resale market.

Prosecutors allege, however, that the system was improperly applied to new mobile phones.

According to the EPPO, the suspected operation used a cross-border trading structure involving companies in Bulgaria, Cyprus and Germany.

Investigators believe handsets were passed through a chain of companies before eventually being sold to consumers by German online retailers.

The transactions allegedly created the appearance that the devices qualified for margin-scheme treatment, meaning VAT was calculated on the retailer’s margin rather than the handset’s full value.

The EPPO alleges this enabled phones to be offered at prices below those of businesses applying normal VAT treatment and generated profits that were subsequently distributed through the network of companies.

Prosecutors estimate the resulting VAT loss at more than €15.7 million, although they stress that the final figure remains subject to the continuing investigation.

Cross-border investigation

The operation involved national tax and law-enforcement authorities in all four countries and was supported by Europol.

The EPPO said two principal suspects, described as a Bulgarian couple, are alleged to have organised and controlled companies used within the trading structure. No individuals or companies were named in the prosecutor’s announcement.

The case highlights the continuing scrutiny of VAT arrangements within Europe’s mobile phone supply chain.

It follows previous EPPO investigations involving handset trading. In January 2024, prosecutors carried out searches in six countries over a separate suspected €19 million VAT fraud involving second-hand phones imported from Hong Kong, the UAE and US.

Another investigation announced in December 2024 concerned an alleged €32 million cross-border VAT carousel fraud involving mobile phones, in which two suspects were arrested in Austria.

The latest investigation remains at the pre-trial stage. All those concerned are presumed innocent unless and until proven guilty in the competent German courts.