A recent article [PDF] in the Telegraph examines the rise in UK tax fraud in carbon emissions trading market. The scheme is a variation on the VAT carousel fraud, where criminals import products VAT-free from EU member states, then sell the goods in the UK with a VAT charge, only to quickly disappear without turning over the VAT charge to the UK’s customs and tax department, Her Majesty’s Revenue & Customs.
The carbon credit tax scheme works in a very similar fashion. Trading companies in the UK can buy carbon credits from exchanges in the EU, then sell these credits to companies or traders in the UK with a VAT charge. They then quickly disappear without handing over the VAT charge to the government.
While the British government is searching for ways to deal with the problem, some countries in the EU have already taken steps to prevent fraud. Last month the French Budget Ministry made all carbon credits VAT-exempt.
The attempted fraud and unethical business practices associated with carbon credits is likely to get worse, as the carbon market is already worth an estimated $126 billion and growing. If the US Congress passes a cap and trade bill, the market is set to explode in value and complexity.
Categories: Carbon Credit Watch