site.btaBulgaria among Six European Countries where European Prosecutors Probe EUR 19 Mln VAT Fraud

The European Public Prosecutor’s Office (EPPO) said in a press release on Thursday that it carried out 25 searches and other investigative measures in six European countries targeting a suspected EUR 19 million VAT fraud involving second-hand mobile phones.

The investigation stretches across Bulgaria, Germany, Italy, Malta, the Netherlands and Slovenia. During the searches, a large number of documents, electronic devices and evidence were seized, as well as EUR 31,500 in cash and cryptocurrency worth roughly EUR 40,000. Several bank accounts were frozen, with at least EUR 88,000 seized so far.

At issue is a suspected criminal scheme whereby companies, based in several EU Member States, fraudulently apply reduced VAT to the sale of second-hand mobile phones imported from Hong Kong, the United Arab Emirates and the United States, in order to illicitly increase their profits.

When selling second-hand goods bought from private persons in the EU or from sellers who have already paid VAT in full for such items, the reseller only has to pay VAT on the profit margin they make (the difference between the price paid for the item and the price for which it is sold) and not on the full sale price of the item. However, it is suspected that the companies under investigation applied this provision unlawfully, charging reduced VAT when the full rate was due. The suspected fraud also allowed mobile phones to be sold at a lower market price, thus causing unfair competition.

According to the investigation, between 2019 and 2022, four suspects worked together to defraud Bulgarian, German and Slovenian tax authorities of the VAT due on imported used smartphones 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, the press release explained. 

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 bought the smartphones 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 having defrauded the payment of VAT in Bulgaria, Germany and Slovenia, with an estimated damage of at least EUR 19 million. It is understood that some of the illicit profits may have been concealed in bank accounts and assets in other Member States.