Sunday

20th Aug 2017

EU carbon credit system still 'at risk of VAT fraud'

  • Fraudulent traders used loopholes in the EU's emission trading system to make up to €5 billion (Photo: SWIFT)

A loophole allowing carbon-credit tax fraud resulting in losses of several billion euros has not been fully closed, the European Court of Auditors said in a report published Thursday (2 July).

The EU's Emissions Trading Scheme market, put in place to reduce carbon emissions, “remains at risk to VAT fraud”, the auditors said in a special report titled The integrity and implementation of the EU ETS.

Thank you for reading EUobserver!

Subscribe now and get 40% off for an annual subscription. Sale ends soon.

  1. €90 per year. Use discount code EUOBS40%
  2. or €15 per month
  3. Cancel anytime

EUobserver is an independent, not-for-profit news organization that publishes daily news reports, analysis, and investigations from Brussels and the EU member states. We are an indispensable news source for anyone who wants to know what is going on in the EU.

We are mainly funded by advertising and subscription revenues. As advertising revenues are falling fast, we depend on subscription revenues to support our journalism.

For group, corporate or student subscriptions, please contact us. See also our full Terms of Use.

If you already have an account click here to login.

A carousel fraud involving the trade of emission credits in 2008 and 2009 amounted to a loss of €5 billion for national tax revenues.

A front company in one EU country would sell the carbon credits to a company in another, but without transferring VAT tax. The credits would then be traded and sold for a price that included VAT - but did not hand over that VAT to the relevant tax authority.

Following the fraud scheme, the EU adopted a directive which gave member states the possibility to implement a VAT reverse charge mechanism, which puts the obligation to pay VAT on the person to whom credits are transferred. This has been seen as a sufficient deterrent.

But not all 28 member states have put the mechanism in place.

Six countries - Bulgaria, Cyprus, Estonia, Latvia, Lithuania and Malta - are dragging their feet on implementation.

“The risk of value added tax (VAT) fraud on EU ETS allowances is consequently still not fully addressed in the European Union”, the auditors' report said.

Kevin Cardiff, the Irish member of the ECA, told this website that “we don't have an indication that [this type of fraud] is still being carried out”, but that may also stem from the fact that the ECA did not actively investigate it.

In a response published in the report, the Commission noted that in June 2011, the then climate and tax commissioners sent a letter to all member states that had not applied the mechanism yet to urge them to do so.

“This demonstrates that the issue has been addressed at the highest possible level”, the Commission said.

The Luxembourg-based European Court of Auditors – which is more of an audit agency than a real court – said in its report that while there were “significant improvements to the framework for protecting the integrity of the [ETS] system”, the management of the ETS by the Commission and national governments “was not adequate in all respects”.

EU emissions trading an 'open door' for crime, Europol says

The EU's flagship mechanism for combatting climate change, the Emissions Trading Scheme, is an "open door" for crime, a Europol agent told EUobserver, following revelations the scheme has cost governments €5 billion euros in tax fraud.

Opinion

EU must scrap carbon compensation scheme

One of the main planks of the EU Emissions Trading System rewards polluters and must be abolished, says Peter Eriksson of the Greens/EFA group.

Airbnb too 'different' to pay EU tax

US home rental firm said its “model is unique” because most of the money stays in pockets of local people, as France and Germany prepare EU tax crackdown.

Greece looking at bond market return

Greece could issue 3-year bonds as early as this week, for the first time in three years, amid mixed signs from its creditors and rating agencies.

EU cautious with German diesel plan

The European Commission welcomed the German carmakers' pledge to update software in diesel cars, but is waiting for details on how emissions will be reduced.

News in Brief

  1. Macedonia sacks top prosecutor over wiretap scandal
  2. ECB concerned stronger euro could derail economic recovery
  3. Mixed Irish reactions to post-Brexit border proposal
  4. European Union returns to 2 percent growth
  5. Russian power most feared in Europe
  6. Ireland continues to refuse €13 billion in back taxes from Apple
  7. UK unemployment lowest since 1975
  8. Europe facing 'explosive cocktail' in its backyard, report warns

Stakeholders' Highlights

  1. European Healthy Lifestyle AllianceDoes Genetics Explain Why So Few of Us Have an Ideal Cardiovascular Health?
  2. EU2017EEFuture-Themed Digital Painting Competition Welcomes Artists - Deadline 31 Aug
  3. ACCABusinesses Must Grip Ethics and Trust in the Digital Age
  4. European Jewish CongressEJC Welcomes European Court of Justice's Decision to Keep Hamas on Terror List
  5. UNICEFReport: Children on the Move From Africa Do Not First Aim to Go to Europe
  6. Centre Maurits CoppietersWe Need Democratic and Transparent Free Trade Agreements Says MEP Jordi Solé
  7. Counter BalanceOut for Summer, Ep. 2: EIB Promoting Development in Egypt - At What Cost?
  8. EU2017EELocal Leaders Push for Local and Regional Targets to Address Climate Change
  9. European Healthy Lifestyle AllianceMore Women Than Men Have Died From Heart Disease in Past 30 Years
  10. European Jewish CongressJean-Marie Le Pen Faces Trial for Oven Comments About Jewish Singer
  11. ACCAAnnounces Belt & Road Research at Shanghai Conference
  12. ECPAFood Waste in the Field Can Double Without Crop Protection. #WithOrWithout #Pesticides