Saturday

25th Mar 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.

Dear EUobserver reader

Subscribe now for unrestricted access to EUobserver.

Sign up for 30 days' free trial, no obligation. Full subscription only 15 € / month or 150 € / year.

  1. Unlimited access on desktop and mobile
  2. All premium articles, analysis, commentary and investigations
  3. EUobserver archives

EUobserver is the only independent news media covering EU affairs in Brussels and all 28 member states.

♡ We value your support.

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.

SMEs lack support in EU financial plan

The European Commission's plan for a capital markets union is said to be aimed at small and medium-sized enterprises, but many could end up being left out in the cold.

Eurozone chief in 'drinks and women' row

[Updated] The Netherlands' Jeroen Dijsselbloem faces calls for resignation after saying that crisis-hit countries in southern Europe spent "money on drinks and women" before being helped by others.

Stolen Russian billions ended up in EU states

Illicit money flowing out of Russia ended up in almost every single EU state, an investigation has found, posing questions on the integrity of Europe’s banking systems.

Stakeholders' Highlights

  1. European Gaming & Betting Association60 Years Rome Treaty – 60 Years Building an Internal Market
  2. Malta EU 2017New EU Rules to Prevent Terrorism and Give More Rights to Victims Approved
  3. European Jewish Congress"Extremists Still Have Ability and Motivation to Murder in Europe" Says EJC President
  4. European Gaming & Betting AssociationAudiovisual Media Services Directive to Exclude Minors from Gambling Ads
  5. ILGA-EuropeTime for a Reality Check on International Day for the Elimination of Racial Discrimination
  6. UNICEFHuman Cost to Refugee and Migrant Children Mounts Up One Year After EU-Turkey Deal
  7. Malta EU 2017Council Adopts New Rules to Improve Safety of Medical Devices
  8. Nordic Council of MinistersNordic Energy Research: How to Reach 100 Percent Renewable Energy
  9. Party of European SocialistsWe Must Renew Europe for All Europeans
  10. MEP Tomáš ZdechovskýThe European Commission Has Failed in Its Fight Against Food Waste
  11. ILGA-EuropeEP Recognises Discrimination Faced by Trans & Intersex People
  12. Nordic Council of Ministers25 Nordic Bioeconomy Cases for Sustainable Change