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18 March 2010

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.


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