EU clamps down on carbon market fraud

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EU finance ministers approved on Tuesday (16 March) a directive to clamp down on VAT fraud in carbon markets by allowing member states to shift the levy to the end user.

The new directive, which amends the common system of value added tax (VAT), comes in response to fraud cases reported by several member states last summer (EURACTIV 01/10/09).

Traders used a method known as 'carousel fraud', whereby carbon credits were bought in one country without having to pay VAT, and sold in another country where VAT was charged. They then disappeared before paying the tax to the authorities.

To tackle the problem, member states will have the option of temporarily (until 30 June 2015) reversing liability for VAT payments on greenhouse gas emission allowances from the supplier to the customer. This 'reverse charge' principle would eliminate the opportunity for fraud, as carbon traders would no longer charge buyers VAT.

The law was proposed last September by the European Commission and approved by ministers in record time.

In the absence of a harmonised solution, several EU countries moved swiftly to stop VAT crime unilaterally. The Dutch government took the reverse charge approach, shifting liability for VAT to buyers, while France and the UK scrapped the levy on emissions allowances.

EU ministers also pledged to continue to work on reaching an agreement to apply reverse charges to other fraud-sensitive goods, like mobile phones and electronic circuit devices, which were part of the European Commission's proposal.

VAT fraud is not the only criminal activity that has been targeted recently regarding the emissions trading scheme (EU ETS), which is the EU's primary tool for tackling global warming emissions.

Earlier this year, Internet fraudsters robbed companies of their emission allowances by obtaining the access codes to their accounts through a rogue website. This prompted the Commission to revise rules governing the emissions registries, allowing national administrators to close user accounts or to refuse would-be fraudsters permission to open new ones (EURACTIV 18/02/10).

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