UK Government Tackles VAT Fraud In Carbon Credits Market

The UK government has introduced legislation to remove value-added tax (VAT) from supplies of emissions allowances traded within the UK, in order to prevent the risk of VAT fraud.

The new law, announced by Financial Secretary to the Treasury Stephen Timms, took effect from midnight on July 30. It follows evidence that commodity trading in emissions allowances is being used to commit VAT fraud.

The UK government believes that the country may become “a major target” for this activity in the coming months. “UK monitoring indicates that there now exists a substantiated and increasing risk of the UK becoming a major target for the fraudsters,” a Treasury statement explained.

“The change will have no effect on legitimate trading but will prevent fraudsters from charging and collecting VAT which they have no intention of paying to HMRC,” the Treasury added.

Similar measures have been taken by the governments of France and the Netherlands to prevent this form of fraud.

The UK government has sought a derogation from European Union (EU) law to cover this short-term action pending agreement with EU partners on an EU-wide solution.

The measure means that supplies of emissions allowances in the UK are now subject to the zero-rate of VAT. A zero-rate is still a taxable supply which means that although no VAT is charged, thereby removing the opportunity to steal VAT, the seller can generally reclaim VAT on any purchases that relate to those sales. This ensures that the legitimate trade will not incur additional tax costs from this change.

The threat became apparent after fraudulent trading on the Bluenext exchange prompted the French government to remove VAT from supplies of emissions allowances in France. The Dutch government has taken a similar decision, although the Dutch carbon exchange, Climex, said recently that no instances of VAT fraud had been detected in its trading activity.

The UK government informed that it is “actively engaged” in discussions with the European Commission on establishing an EU-wide solution to this threat.

The EU VAT system has been a fertile area for fraudsters and financial criminals in recent years, and VAT Missing Trader Intra-Community (MTIC) fraud, better known as ‘carousel’ fraud, has deprived national treasuries of billions in VAT revenues. “We have seen how quickly frauds of this kind can escalate and how effective decisive action can be in tackling them,” the Treasury stated.

MTIC fraud arises where VAT standard-rated goods or services are effectively traded VAT free between EU member states. This is because the VAT is due in the country in which the customer belongs, meaning that the VAT can be accounted for and simultaneously reclaimed by the customer. The customer then has the opportunity to charge VAT on its onward domestic supply and disappear without accounting for the VAT due.

According to the UK government, the secondary cross-border market in emissions allowances generates very high volume, value and speed of trade, and this, combined with the fact that EU emissions allowances only go to final consumption once a year, provides fraudsters with “multiple opportunities to steal VAT” following cross-border acquisitions.

Esol

Article Source:http://www.articlesbase.com/credit-articles/uk-government-tackles-vat-fraud-in-carbon-credits-market-1097159.html