Gas and electricity fraud force energy groups to speak out

How secure are energy supplies in major cities across the globe? [Nick Page/Flickr]

Europe’s ten largest gas and electricity associations have called upon the European Commission to enforce the 2013 directive on VAT fraud across all 28 member states. Only six states currently apply the directive. EURACTIV France reports

For once, it is a group of industry associations, not the European Commission, that has launched an appeal to the EU’s member states to improve their implementation of European legislation.

The ten largest associations in Europe’s energy sector (the Group of Ten), including Eurelectric and Europex, have joined forces to officially ask the 28 member states to implement the directive on VAT fraud.

The Commission asked all 28 member states to modify their legislation to protect themselves against VAT fraud, but so far, only six have done so: the United Kingdom, France, the Netherlands, Germany, Romania and Austria.

>> Read: Brussels wages new battle against VAT fraud

Infiltration of organised crime

According to a spokesperson for Europol, the European criminal intelligence agency “continues to be notified by [their] partners in both the law enforcement and the private sector of organised criminal attempts to infiltrate this field”.

He added that these attempts “can range from creating bogus companies with the sole purpose of stealing millions of euro of VAT from European governments, and therefore ordinary European citizens, to hijacking the activities of reputable companies in the market”.

The German electricity market, Europe’s largest, has been the victim of several cases of fraud in the past, mostly from bogus companies based outside Germany.

New VAT rules push fraud across borders

The adoption of the reverse charge system, whereby the purchaser – not the seller – is liable for VAT, has cut the losses of the countries where it has been implemented, but had the opposite effect in other countries.

Contrary to the French energy market, which is very centralised, with only a handful of authorised providers, the German market is home to many more companies, which are regulated and licenced at state level. Companies can potentially abuse this access point to Europe’s energy markets in order to commit fraud in other countries within the EU.

A source from the electricity market said, “We are most concerned about the countries with relatively high rates of exchange, and where the providers are not necessarily aware of the risks.”

Italy, which is changing its VAT regime for CO2, electricity and gas in 2015, has regularly been the target of VAT fraud.

Italy in the firing line

The southern European country has been the biggest victim of fraud in the electricity market, as well as suffering heavy losses in the carbon market.

The Italian customs office found evidence linking the carbon market fraud carried out in Italy and France to Islamist terrorist groups in Afghanistan.

According to the European Commission, Italy loses more to VAT fraud than any other EU member state, failing to collect around 45 billion euros each year. France is the EU’s second largest VAT black hole, with annual losses of €26 billion.

Calling the European Commission to action

“We call upon the new European Commission, together with the remaining 22 Member States, to take proactive measures in order to quickly adopt the anti-VAT fraud package at national level,” the Group of Ten wrote in a communiqué.

Jean-Pierre Goux of Europex, the Association of European Energy Exchanges, commented that “it would be good if the Commission would take charge of the subject and bring it up at the next Ecofin meeting, in order to accelerate the implementation of the directive”.

The Commission recognises the fact that the reverse charge system can lead to fraud being displaced across borders, rather than eradicate it, and that only the standardisation of the VAT regime across the EU can solve this.

Uncollected VAT costs the EU 177 billion euro per year, according to the European Commission.

The Commission's CASE report estimated France's VAT gap at 25 billion euro, a particularly extreme case. The rate of uncollected VAT in France is around 15%, compared to 10% in Germany and 44% in Romania.

VAT fraud, which deprives the state of vital resources, is committed by businesses, and probably accounts for over half of the total uncollected VAT. This fact has been brought to light in successive reports by the French Parliament in 2011 and 2013, and by the European Court of Auditors in 2012.

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