Malta among six countries probed by EPPO over €19 million second-hand smartphone VAT fraud

On Wednesday, the European Public’s Prosecutor’s Office (EPPO) carried out a total of 25 searches and additional investigations actions across six countries, including Malta. This operation was in connection to a suspected €19 million VAT fraud, involving the importation of second-hand mobile phones from Hong Kong, the United Arab Emirates (UAE), and the United States (US).

The EPPO is the independent pulbic prosecution office of the European Union (EU). It is responsible for investigating, prosecuting, and bringing to judgement crimes against the financial interests of the EU.

The investigation, code-named ‘Concertina’, was led by the EPPO in Munich Germany. It was spread across Bulgaria, Germany, Italy, Malta, the Netherlands and Slovenia. It was done through the support of Europol and the Munich Tax Investigation Office.

The EPPO seized a large volume of documents, electronic devices and evidence in addition to €31,500 in cash and cryptocurrency valued at around €40,000. As a result, several bank accounts were frozen with €88,000 seized so far.

Through the alleged criminal scheme, companies, located in multiple EU Member States, fraudulently applied reduced VAT on the sales of second-hand mobile phones imported from the US and other non-EU countries. This is done to unlawfully boost their profits.

In ordinary circumstances, when reselling second-hand goods obtained from private individuals within the EU or from sellers who have already paid the full VAT for such items, the reseller can utilise the ‘margin taxation’ scheme, following the conditions outlined in relevant legislation, EPPO explained in a press release.

In that case, the reseller is only obligated to pay VAT on the profit margin rather than the entire selling price.

Nonetheless, it is suspected that the companies under investigation have unlawfully applied this provision, charging a reduced VAT when the full rate should have been applied.

“The suspected fraud also allowed mobile phones to be sold at a lower market price, thus causing unfair competition,” EPPO added.

The investigation has learned that between 2019 and 2022 four suspects worked together to defraud Bulgaria, German and Slovenian tax authorities of the VAT due on used smartphones from the US and other countries.

This was done by setting up a chain of companies engaged in a seemingly legitimate intra-community delivery of goods, in triangular transactions exempt of VAT until the final destination.

“It is understood that they took advantage of the fact that several national authorities were involved along the chain of transactions, to knowingly dissimulate the eventual switch to margin taxation. This was despite knowing that the requirements for the application of the taxation were clearly not met,” EPPO stated.

The companies involved in the suspected fraud are located in Bulgaria, Germany and Slovenia and are managed by the four individuals under investigation. The company in Slovenia allegedly bought the smartphone from companies in Hong Kong, the UAE and the US, and then sold them to the company in Bulgaria.

The goods were then sold to the company under investigation in Germany at a VAT margin rate. The same rate was applied when the goods were sold to final customers in Italy, Finland, Poland and Sweden.

The parties under investigation are suspected of committing VAT fraud in Bulgaria, Germany and Slovenia, resulting in an estimated damage of at least €19 million. It is believed that certain portions of the illicit profits may have been hidden in bank accounts and assets located in different Member States.