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/ News / A loophole allowing carbon-credit tax fraud that causes losses of several billion euros has not been fully closed, the European Court of Auditors has said.

A loophole allowing carbon-credit tax fraud that causes losses of several billion euros has not been fully closed, the European Court of Auditors has said.

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

Carousel fraud involving trade of emission credits in 2008 and 2009 cost EU nations 5 billion euros in tax revenue. 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 this was not paid to the relevant tax authority.

This led to the EU allowing member states 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 the report says it is not totally effective because not all 28 member states have put the mechanism in place.

Having represented clients in such cases, we can say that such loopholes will always be open to exploitation, however small they are. Companies and individuals have to do due diligence on those they do business with to ensure they are not implicated in fraud – and if they are, they need immediate legal advice.

Read the article 'Who would credit it?'

A loophole allowing carbon-credit tax fraud that causes losses of several billion euros has not been fully closed, the European Court of Auditors has said.

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