(Luxembourg, 4 March 2025) – The European Public Prosecutor’s Office (EPPO) in Ostrava (Czechia) is leading an investigation into a suspected €14 million (CZK 335 million) VAT fraud scheme involving the trade of second-hand mobile phones. Searches were conducted last week in Czechia and Latvia, leading to five arrests.
The searches were carried out in multiple locations by Czechia’s National Agency against Organized Crime (NCOZ) and by Latvia’s Revenue Service Tax and Customs Police Department (VID Nodokļu un muitas policijas pārvalde). Three of the suspects were arrested in Latvia. Extradition proceedings of the three Latvian citizens to Czechia are ongoing. One individual was taken into custody in Czechia.
The suspects are believed to have fraudulently applied a reduced VAT rate to mobile phones imported from the United States and other non-EU countries, by falsely declaring them as originating in the EU. It is understood that this allowed them to unlawfully benefit from the VAT margin scheme, which is only applicable to goods previously sold within the EU.
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 so-called ‘margin taxation’ scheme, under the conditions set out in the applicable law. In such cases, 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 suspects applied this provision unlawfully. The suspected fraud also allowed mobile phones to be sold at a lower market price, thus causing unfair competition.
Assets worth €2.5 million were seized, including houses, cars and motorcycles, precious stones, luxury handbags and watches. Bank accounts were also frozen, and IT data and key documents were secured.
Evidence-gathering activities were carried out in several countries, including Austria, Czechia, France, Germany, Italy, Latvia and Slovakia, under the provisions in Article 31 of the EPPO Regulation, which allow for faster cross-border investigations. According to these provisions, the EPPO’s European Delegated Prosecutors are able to request their colleagues in other participating Member States to undertake specific investigation measures, in a faster and more comprehensive manner than under the traditional judicial cooperation methods.
The arrested individuals have been charged with tax fraud. If found guilty, they risk five to ten years of imprisonment.
All persons are presumed innocent until proven guilty in the competent Czech courts of law.
The EPPO is the independent public prosecution office of the European Union. It is responsible for investigating, prosecuting, and bringing to judgment crimes against the financial interests of the EU.