Out-Law News 1 min. read

No VAT charged for carbon trades as Government widens anti-carousel fraud battle


Criminals have been using EU green schemes to commit VAT carousel fraud, the Government has said. It has put an end to the charging of VAT when carbon emissions are traded to stop the activity, it said.

EU-wide carbon trading schemes were conceived as one way of helping to reduce pollution. Companies which do not produce much carbon dioxide can sell their legal CO2-producing capacity to companies which produce more than they are allowed to under the scheme.

The Government said, though, that CO2 trades in the UK were attracting fraudsters who used a scam called carousel fraud or 'missing trader intra-community' (MTIC) fraud to siphon off VAT which they never passed on to Government.

Carousel fraud has been a major problem in the trade in electronic devices such as computer chips and mobile phones. Fraudsters buy goods VAT-free from companies in other EU countries  then sell them on at prices which include VAT. They then disappear without passing the VAT they have collected from a customer on to the Government.

The Government has changed the law to combat the fraud in the past but has now said that carbon emissions trading had become a target for the scam, forcing another law change making VAT non-chargeable on emissions trades.

"The new law, which takes effect from midnight tonight, follows evidence that commodity trading in emissions allowances is being used by fraudsters to steal VAT revenues from the UK, and that the UK may become a major target for this activity in the coming months," said a statement from the Treasury.

"The existence of a strong secondary cross-border market in emissions allowances generates very high volume, value and speed of trade," it said. "This, combined with the fact that EU emissions allowances only go to final consumption once a year provides fraudsters with multiple opportunities to steal VAT following cross-border acquisitions."

The governments of France and the Netherlands have already taken similar action to combat CO2 trading carousel fraud, and the Government has asked for permission to charge a zero percent VAT rate on trades while the EU finds a more permanent solution to the fraud.

"The UK Government is actively engaged in discussions with the European Commission on establishing an EU-wide solution to this threat," said the Treasury statement.

The Government said that the short-term measure would not damage the interests of legitimate businesses, but would put a temporary halt to carbon trading carousel fraud.

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