Well, what makes a Cyprus-based company more profitable, if trading within the EU, is that you can reclaim the VAT for goods bought, but as well you can sell your products with the EU's lowest VAT, namely, 15%!
Now, what EliasIT also tried to explain is that while your competitors have to charge the customer up to 30%, the Cyprus company can charge just 15%. That's a 15% discount 'out of the box' that a Cyprus company can offer their customers. Now for B2B it isn't very lucrative but for B2C it is!
Furthermore, besides the VAT, you have to look into the TAX, i.e. 10% corporate tax which again is the lowest in the entire European Union and the reason thousands of businesses worldwide incorporate in Cyprus! While your competitor in another EU country automatically will have much higher costs due to the higher corporate TAX of up to 28%, the Cyprus business has lower costs. This can increase your chances dramatically to sell more, at a lower price, while you still have the same net profit.
There are endless reasons for registering a Cyprus-based company if your activity is going to be in Europe!
The above are only two of the major reasons that you have to consider.
Why do something of doubtful legality when you can do it without complications - fully legally!