EU prosecutors EPPO investigates € 14 million marginal VAT fraud in used mobile phone trade

The European Public Prosecutor’s Office (EPPO) in Ostrava, Czech Republic, is leading an investigation into a suspected € 14 million marginal VAT fraud scheme related to second-hand mobile phone trade. Authorities conducted searches last week in Czechia and Latvia, resulting in five arrests. Czechia’s National Agency against Organized Crime (NCOZ) and Latvia’s Revenue Service Tax and Customs Police Department (VID Nodokļu un muitas policijas pārvalde) carried out searches in multiple locations. Three suspects were arrested in Latvia and are facing extradition to Czech Republic, while one was taken into custody in Czech Republic.

Fraudulent use of VAT margin scheme

The suspects allegedly misused the VAT margin scheme by falsely declaring mobile phones imported from the United States and other non-EU countries as originating within the EU. This allowed them to unlawfully benefit from a reduced VAT rate, which is only applicable to goods previously sold within the EU. All well-known fraud. This is one of the first occasions SecondaryMarket.news is aware of that authorities enforce marginal VAT. A huge relieve to those that are faced with this fraud across the EU. We expect further action will be taken in all EU member states in the next few months.

Unfair competition and market impact

By applying the VAT margin scheme unlawfully, the suspects were able to sell mobile phones at lower prices (VAT percentage) distorting fair competition in the market. This type of fraud undermines legitimate businesses and disrupts tax revenues.

Authorities seize assets worth € 2.5 million

During the operation, authorities seized assets valued at € 2.5 million, including luxury cars, houses, motorcycles, precious stones, high-end handbags, and watches. Several bank accounts were also frozen, and key documents and IT data were secured.

International cooperation in the investigation

The investigation spans multiple countries, including Austria, Czechia, France, Germany, Italy, Latvia, and Slovakia. The EPPO has utilized Article 31 of its regulation, enabling faster cross-border evidence-gathering through cooperation between European Delegated Prosecutors.