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Losses
to the exchequer so far are unlikely to have exceeded a
few hundred millions pounds but the Treasury said in a
statement that "there now exists a substantiated and
increasing risk of the UK becoming a major target for the
fraudsters during the next few months".
The
move is highly unusual because changes to VAT need to be
agreed by the European Parliament. The decision to press
ahead with the change without prior permission reflects
the severity of the threat posed by the fraud. Similar
steps have already been taken by France and the
Netherlands.
The
ease of trading carbon credits means that the fraud, if
unchecked, could have been even more costly than similar
VAT frauds committed with mobile telephones and computer
chips. These cost many billions, but have now been
substantially reduced by changes to the VAT system.
The
Treasury said: "We have seen how quickly frauds of
this kind can escalate and how effective decisive action
can be in tackling them."
The
fraud, known as missing trader intra-community fraud, can
arise because goods or services are allowed to be traded
VAT-free between member states.
It
occurs where the UK company purchasing the emissions
allowances from overseas sells them to another UK company,
charges VAT but then fails to pay it to Revenue and
Customs, and disappears.
Zero-rating
the carbon emissions allowances would have a negligible
cost to business but would in effect remove the
opportunity to perpetrate fraud, the Treasury said.
Robert
Print, assistant manager of KPMG's carbon advisory group,
said: "We welcome the UK being proactive to ensure
the legitimacy of the market."
However,
he voiced concern about the different responses to the
threat being taken across Europe. He noted that the
Netherlands had opted for a "reverse charge",
requiring all traders to account for VAT at the time of
purchase, and France had exempted the allowances from VAT,
while all other member states except Britain charged a
standard rate of VAT. "The fact there are four
different VAT treatments across the European Union
highlights the need for co-ordinated action," he
said.
Emissions
allowances or "carbon credits" are issued by
governments in Europe under a scheme designed to cut
carbon emissions by businesses.
The
allowances can be traded and there is also a secondary
market in which anybody can trade, for example to
speculate on the price of the credits. The companies must
ensure that they have sufficient credits to cover their
actual emissions at the end of April each year, when these
credits are "retired".
Although
the ability to trade freely in emissions allowances is an
important feature of the EU emissions trading scheme, it
exposes the market to fraud because of the high volume,
value and speed of the trades. Moreover, the fact that the
allowances are surrendered only once a year provides
fraudsters with opportunities to steal VAT following
cross-border acquisitions.
The
first signs of the migration of the fraud into carbon
trading was in May, when the BlueNext exchange was
temporarily shut down after a sustained period of
unusually high trading volumes led the French authorities
to suspect there might have been fraudulent transactions
taking place.
Source :
Financial Times, United Kingdom, dated 31/07/2009
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