Europe proposes carbon trading VAT fraud crackdown

The European Commission yesterday set out proposals designed to tackle the surge in VAT fraud that reportedly dogged the EU's emissions trading scheme over the summer, prompting several countries to suspend VAT on carbon allowances.

The UK, France, and the Netherlands all suspended or reformed VAT on EU emission allowances (EUAs) after suspicions were raised that the carbon market was subject to so-called missing person or carousel fraud.

In this type of fraud criminals sell EUAs on to businesses, charging VAT in the process, before disappearing without passing the revenue on to the government.

Last month, HM Revenue & Customs in the UK raided 27 properties across London in connection with a suspected £38m VAT fraud on carbon credits. Nine suspects have since been released on bail and the investigation is continuing.

The commission yesterday proposed tackling the problem by introducing a reverse charge mechanism, where VAT is removed from individual trades and only levied on the final purchaser of carbon credits.

It also proposed that the same mechanism be extended to other products believed to be susceptible to VAT fraud, including computer chips, mobile phones, precious metals and perfumes.

"VAT carousel fraud is against member states' finances and they should have the means to combat it efficiently," said László Kovács, commissioner for taxation and customs. "However, actions taken against this fraud should be taken in a consistent manner across the EU and clear evaluation criteria should be established."

A spokesman for the UK Treasury welcomed the commission's attempts to tackle fraud on carbon credits. "The UK government took decisive action in July to protect taxpayer revenue from the threat of VAT fraud on carbon credits," he said. "We support the commission in seeking an EU-wide solution and will consider any proposal carefully."