Five people have been arrested in Cyprus, Germany and Italy as part of a European investigation into an alleged €114 million VAT fraud operation involving the cross-border smartphone trade.
The European Public Prosecutor’s Office (EPPO) announced on 16th October that three suspects had been detained in Cyprus, one in Germany and one in Italy following an investigation coordinated by its Munich office.
Investigators believe the suspects established and controlled a network of companies designed to exploit the tax treatment of goods traded between EU member states.
The alleged operation involved smartphone transactions through businesses and so-called missing traders operating in Germany, Albania and Sweden. Prosecutors estimate that the activities caused VAT losses of approximately €80 million in Sweden and €34 million in Germany.
According to the official announcement of the arrests, the operation forms part of a wider investigation known as Midas, which is examining organised cross-border tax fraud.
Searches across several countries
The arrests were accompanied by searches and seizures in Cyprus, Greece and Italy, conducted with the assistance of national police, financial investigators and tax authorities.
Prosecutors said 12 searches had been carried out at premises connected with the suspects and companies under investigation.
Assets of up to €80,000 were frozen, while investigators also seized or took action against bank accounts, vehicles and property.
The operation involved cooperation between Germany’s tax authorities, Cyprus’s financial intelligence and cybercrime units, the Greek financial police and Italy’s Guardia di Finanza.
The suspects are believed to have played leading roles in organising and controlling the alleged scheme, although prosecutors have not publicly established their individual criminal responsibility.
The investigation remains subject to proceedings before the competent German courts. All suspects are presumed innocent unless proven guilty.
How the alleged fraud operated
The case concerns a form of tax evasion known as missing-trader intra-community fraud, commonly described as carousel VAT fraud.
Under the EU’s VAT system, qualifying business-to-business transactions involving goods transported between member states are generally exempt from VAT in the country of dispatch.
The purchaser accounts for VAT under the rules applicable in the destination country, while subsequent domestic sales normally involve VAT being charged to the buyer.
Fraudsters can exploit those arrangements by establishing companies that purchase goods through cross-border transactions before reselling them domestically.
A missing trader collects VAT from the purchaser but fails to remit it to the relevant tax authority. Other companies in the transaction chain may then seek deductions or refunds.
The same goods can pass through several businesses and, in some arrangements, move repeatedly between countries, allowing the fraud to be repeated.
Smartphones and electronic equipment are particularly attractive because they are relatively expensive, easily transported and can be traded in large volumes.
The complexity of the arrangements makes investigations difficult when businesses are established in several jurisdictions and transactions move rapidly between companies.
A wider European problem
The latest arrests follow another substantial VAT fraud operation announced earlier this month.
On 7th October, the EPPO reported that 62 suspects had been detained in a separate investigation involving alleged losses of at least €410 million.
That operation, known as Hermes, involved searches across eight countries and allegations concerning the sale of mobile phones and other electronic devices.
Although separate from Midas, the investigation illustrates the scale and organisation of suspected VAT fraud involving internationally traded consumer electronics.
According to the EPPO‘s 2025 annual report, prosecutors were handling 3,602 active investigations at the end of last year, with estimated potential damage exceeding €67 billion.
Of that amount, more than €45 billion related to suspected VAT and customs fraud.
Those figures concern estimated losses under investigation, rather than sums established by final court judgments or amounts that have already been recovered.
Protecting European tax revenues
The financial consequences extend beyond the immediate losses attributed to individual schemes.
VAT is a major source of revenue for national governments and forms part of the system used to calculate certain contributions to the EU budget.
Fraudulent transactions can also distort competition by allowing dishonest operators to offer prices that legitimate businesses cannot match.
The Commission’s 2025 VAT gap report estimated that EU countries failed to collect approximately €128 billion in expected VAT revenue in 2023.
That broader figure includes losses arising from several causes, including administrative errors and insolvency, and cannot be attributed entirely to criminal fraud.
The latest arrests also demonstrate the importance of cross-border investigative cooperation when suspected financial offences involve companies, transactions and assets located in different countries.
In the Midas investigation, prosecutors must now establish the precise roles of the suspects, prove the alleged transactions and determine whether criminal proceedings can result in convictions and financial recovery.
The arrests represent another stage in the investigation, not a judicial finding that the alleged €114 million fraud has been proved.
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