Carbon credits hit by carousel fraud

Article taken from the Financial Times. To view article, click here

Carousel fraud has found its way to the carbon market. The particularly European type of fraud entails setting up complicated import and export schemes between EU member countries, charging buyers for value-added tax in the country of destination, and then absconding with the tax rather than handing it over to the governments.

In 2006 the UK and German governments embarked on a series of raids, and the UK introduced 'reverse charging' for VAT on certain items prone to carousel fraud. At the time carousel fraud was mainly seen as confined to small electronic goods such as mobile phones and computer chips.
A year later it was observed that fraudsters were simply moving away from those goods towards others that hadn't yet been targeted by authorities. But it wasn't until high volumes of trade were observed on France's BlueNext carbon exchange this year that carousel fraud became an issue in the carbon markets.

France last month decided to exempt carbon permits from VAT without seeking the required approval from the EU, and the UK government has applied a zero VAT rate to carbon credits, again without seeking EU approval. The Netherlands meanwhile has introduced rules so that the carbon permit buyer, rather than the seller, is responsible for paying tax. And Spain is reportedly considering what to do about the issue.

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