New phones sold as “second-hand”: EU prosecutor suspects €15.7m VAT fraud

Yes, another VAT story. After the “Money Cat” carousel, after Venice, after “Echo” in Czechia, loyal readers are entitled to a sigh. Rest assured: no merry-go-round this time. On 16 September 2026, the European Public Prosecutor's Office (EPPO), working from its Frankfurt am Main office, carried out searches, arrests and asset freezes in Germany, Bulgaria, Cyprus and Austria, in an investigation into suspected VAT fraud on the online sale of mobile phones. This time the trick is called the margin scheme. Everyone concerned is presumed innocent.

The tally announced on 17 September is hefty: four suspects arrested, three in Bulgaria and one in Germany; searches at business premises and private homes; bank accounts, phones and luxury watches seized. The investigative court in Frankfurt ordered the freezing of around €20.5 million against two suspects and two companies, and €3.3 million has already been recovered from one of the companies under suspicion. The tax loss is estimated at over €15.7 million, with the final figure still to be established.

The margin scheme, or the art of taxing only the profit

To follow the wheeze, a brief detour through EU tax law is required. Ordinary VAT applies to the full selling price. But the VAT Directive provides a special scheme for second-hand goods, works of art, collectors' items and antiques (Articles 311 to 325 and 342-343): a dealer using it pays VAT on the profit margin alone, neither charging nor deducting VAT on the whole price. The intention is respectable: an item already taxed when first sold to a private individual should not be taxed again in full when a dealer resells it.

A purely illustrative example. A new phone sold in Germany carries VAT at 19% on its entire price: on a handset costing several hundred euros, that is well over a hundred euros in tax. The same device sold “under the margin scheme” bears VAT only on the gap between its purchase and resale price — a few tens of euros at most — and hence a few euros of tax. Multiply by tens of thousands of phones and the millions start to add up.

A chain of companies to “age” new phones

According to the EPPO, the suspects allegedly set up a cross-border trading structure involving companies in Bulgaria, Cyprus and Germany. The phones, though new, were allegedly passed through a chain of companies controlled by the suspects before being sold by German online retailers to end customers. At each step, the appearance was created that the devices qualified for the margin scheme, so VAT was calculated only on the sellers' margin rather than on the phones' full value.

At the centre, investigators say: a Bulgarian couple, described as the two main suspects, who allegedly organised and controlled the companies used and applied the unlawful VAT rules across the entire supply chain. Their names have not been made public. In Cyprus, according to the Cyprus Mail, authorities searched five companies and one residence in Nicosia and Larnaca, seizing documents and electronic data.

The real victim: the honest competitor

Here lies the key difference from a classic carousel. In a carousel, a “missing trader” pockets the VAT and vanishes. Here nobody needs to vanish: the VAT is simply calculated too low from the outset. The advantage shows on the price tag. According to the EPPO, the scheme allowed the phones to be sold more cheaply than competitors complying with tax rules, generating substantial illicit profits that were then shared out across the network of companies.

In other words, the customer who thought they had bagged a bargain on a marketplace probably noticed nothing, while the retailer paying the full 19% was being undercut by a rival with mysteriously unbeatable prices. VAT fraud is not just a hole in the budget: it is also a distortion of competition.

Four countries and an army of agencies

The operation drew on Europol and a long list of authorities. In Bulgaria: the National Investigation Service, the State Agency for National Security (DANS), the Chief Directorate Combating Organised Crime (GDBOP) and the National Revenue Agency (NRA). In Austria, the Anti-Fraud Office (ABB). In Cyprus, the tax department, the police and its digital forensics lab. In Germany, tax investigation offices in Berlin, Braunschweig, Frankfurt (Oder) and Koblenz, backed by IT investigators from Mainz, Neustadt and Trier, plus the Central Criminal Investigation Department in Braunschweig. German authorities in Braunschweig and Berlin are also seeking to recover assets from the companies that sold the phones and from their managers.

The sector is no stranger to the European Prosecutor. Trade site Mobile News recalls that in January 2024 the EPPO searched premises in six countries over a €19 million VAT fraud on imported second-hand phones, and that in December 2024 an alleged €32 million carousel involving mobiles led to two arrests in Austria.

A calendar irony: “Troja”, the mirror image

On 29 September, twelve days later, the EPPO announced another case, dubbed “Troja”, which looks like a reflection in a mirror: there, more than one million used phones, rebuilt from second-hand parts, were allegedly sold as new across the EU, again with abuse of the margin scheme. Estimated damage: at least €300 million to consumers and over €30 million in VAT. New dressed up as old on one side, old dressed up as new on the other: the smartphone market clearly has issues with its products' age.

For now, nobody has been tried in the Frankfurt case. As the EPPO expressly states, all persons concerned are presumed innocent until proven guilty in the competent German courts. The investigation must still pin down the exact loss and each person's precise role.

Magouilles & Compagnie verdict

Magouille or calomnie? There are arrests, asset freezes, €3.3 million already handed back and a mechanism described in detail by the European Prosecutor; there is no judgment yet. Holding verdict: brand-new phones sold as second-hand left only the taxman looking his age… and justice, unlike a handset, cannot be resold under the margin scheme.