Global Daily Tax News, EU Uncovers Substantial VAT Margin Scheme Fraud Linked To Phone Sales, (Jan 24, 2024)
The European Public Prosecutor's Office (EPPO) has recently undertaken an investigation that uncovered a widespread value-added tax fraud involving the sale of second-hand mobile phones imported from Hong Kong, the United Arab Emirates (UAE) and the United States.
The investigation involved 25 searches and other investigative measures carried out on January 17.
Code-named 'Concertina', the investigation, led by the EPPO in Munich (Germany), stretched 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 EUR31,500 in cash and cryptocurrency worth roughly EUR40,000. Several bank accounts were frozen.
The fraud scheme involved companies based in several EU member states fraudulently applying reduced VAT to the sale of second-hand mobile phones imported from the United States and other non-EU countries, in order to illicitly increase their profits.
Ordinarily, 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 may apply the margin taxation scheme, under the conditions set out in the applicable law.
In such cases, the reseller has to pay VAT only on the profit margin they make 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.
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 used smartphones imported from the US and other countries, by setting up a chain of companies engaged in a seemingly legitimate intra-community delivery of goods, in triangular transactions exempt from VAT until the final destination.
Investigators believe the fraudsters 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 – despite knowing that the requirements for the application of this taxation were not met.
The companies involved in the suspected fraud are located in Bulgaria, Germany and Slovenia.
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 EUR19m.