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€19 million fraud involving trade in second-hand mobile phones

22 January 2024

Recently the Officer of the European Public Prosecutors Office (“EPPO”) conducted 25 searches in six countries across Europe in pursuit of its investigation of an alleged €19 million fraud involving trade in second-hand mobile phones imported from Hong Kong, the UAE and the USA.

Goods from these locations are not eligible for use in margin schemes and so any companies trading them ‘on margin’ are liable to pay VAT at the full rate, plus substantial penalties. Margin schemes allow for favourable VAT treatment to companies buying and selling second life goods and their correct use can substantially reduce a trader’s VAT liability. It is for this reason that that there are strict rules for the goods that can be traded on margin and why the scheme is monitored by tax authorities.

The news of the crackdown by the EPPO is somewhat unsurprising as I previously discussed the use, and likely widespread abuse of the various VAT margin schemes by mobile phone companies and the specific rules that apply to this industry in 2019. It has also been suspected for some years that there was widespread abuse of the VAT margin schemes in the UK and the EU, particularly companies that misuse margin schemes or otherwise become duped or misled into purchasing consignments of non-qualifying stock using margin schemes and exposing themselves to large financial losses.

The market for used/returned/refurbished mobile phones has boomed in recent years. Advances in handset technology, increased longevity of designs and the rising costs of new handsets has all contributed to this growing market segment. Latest estimates showed global sales of used mobile phones in just Q1 2023 in excess of $13 billion.

Given the size and profitability of the market, the searches that took place under warrant earlier today are likely to only be the start of tax authorities’ enforcement action in this matter. Investigation teams of tax authorities across the UK and mainland Europe are likely to follow the leads identified in these searches and raise VAT assessments for the misuse of VAT margin schemes.

I'm happy to have a chat with any companies that may have traded in these goods unknowingly and need to appraise of their options, or, who consider they need advice on the proper operation of VAT margin schemes in the UK.

Company Name: Keystone Law
Name: Martin O'Neill
Mobile: +447940732316
Telephone: +442033193700

Whatsapp: https://wa.me/447940732316 
Email: martin.o'[email protected]  

Address: 49 Chancery Lane. London WC2A 1JF United Kingdom
Website: www.keystonelaw.co.uk 

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