German authorities have convicted three men in a massive tax fraud scheme involving internet-based phone services, in a case that European prosecutors say cost taxpayers an estimated 100 million euros ($113.9 million).
The European Public Prosecutor’s Office (EPPO) said Monday that its office in Munich helped secure the convictions, which mark a significant breakthrough in one of Europe’s most complex cases of so-called VAT carousel fraud.
The scheme was run by a criminal group code-named “Cuba” and centered around Voice over Internet Protocol (VoIP)—technology that allows people to make phone calls over the internet instead of traditional telephone networks. Investigators say the group faked transactions between companies to fraudulently claim back value-added tax (VAT), a type of sales tax used across the European Union.
The scam followed a pattern known as a "missing trader" scheme, where companies are set up to buy and sell services but vanish without paying the VAT they owe. Other companies in the network then use fake invoices to claim tax refunds for transactions that never happened—sometimes citing “Cuba” as a destination for fake services.
One of the men convicted acted as the de facto manager of a company that was supposedly trading in electronics, but in reality, the goods were never bought or sold. His company served as the German base for the scam's main organizers, who prosecutors believe were based in the United Kingdom. Between 2018 and 2021, the man failed to declare or pay any taxes on the transactions listed in the fake invoices.
A second man, officially listed as the company’s director from 2018 to 2020, was also convicted. Prosecutors said he was aware of the fraud but did nothing to stop it or report it.
Earlier this month, a third man involved in the scheme was sentenced by a regional court in Landshut. He had submitted false invoices to claim fraudulent VAT refunds as part of a carousel scam, which takes advantage of EU rules exempting cross-border sales from VAT. His actions alone caused an estimated 7.3 million euros ($8.3 million) in damages.
The sentences varied: one defendant received a five-year, nine-month prison term, another got two years’ probation, and the third received a two-year suspended sentence. Authorities also confiscated 7.3 million euros in illegal gains.
