UK drops EUA VAT; EU urged to follow
Emissions trading bodies are calling for EU-wide regulation to halt the value added tax (VAT) fraudsters who are plaguing CO2 spot trading.
The UK became the third European country to cut VAT from EU allowances (EUAs) and certified emissions reductions (CERs) when the UK’s financial secretary to the treasury announced the new law late on Thursday.
Industry sources told ICIS Heren on Friday that they had experienced a growth in the number of unsolicited calls seeking information on trading EUAs and CERs.
“We’ve had lots of people calling up who don’t know what an EUA is, asking how they can trade it,” said one insider.
“There have been more enquiries asking for brokerage services from companies we’ve never heard of and they don’t even have a website,” another source said. “These kind of calls do set the alarm bells ringing,” he added.
The new legislation took effect at midnight on Thursday following concerns that the UK would become the next target for VAT fraud.
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 also made VAT changes in respect of emissions allowances trading.
“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 stated.
The Carbon Markets and Investors Association (CMIA) said that it supported EU-wide regulation first and foremost. The industry body urged that any EU level discussions should be centred around finding a solution that would not lead to additional VAT costs for traders.
The International Emissions Trading Association echoed the views: “The best approach would be that all member states put a zero rate of VAT on EUA spot trades, like France and the UK have now done. The worst situation would be if each country were to adopt their own specific method such as how the Netherlands has done.”
An EU-wide scheme could be hard to pull off, although the UK treasury said it was keen to see an EU-wide solution to the fraud problem.
“Political feasibility in regards to implementing the options that exist is a difficult call to make,” said Alexandra Galin manager of policy and working groups at CMIA.
“It seems that member states have attempted, insofar as possible, to stop these suspected fraudulent transactions in their tracks. We support the speed of the response, but would urge an EU-wide directive to equalize the EU ETS intra-EU trading environment – and as expediently as is possible, considering the urgency,” she added.
The CMIA is scheduled to meet officials from the UK treasury on 5 August (see EDCM 23 July 2009) as traders are now calling for clearer guidelines on what they have to do to check that their counterparty is bona fide.
The European Climate Exchange has buffered itself well from the threat of VAT fraud, as its spot-like product is a futures contract and does not lend itself to the traditional delivery versus payment model.
The European Commission is aware of the strong suspicion of carrousel fraud in carbon emission certificates, a Commission spokesman said on Friday.
“The Commission is in the process of examining measures taken nationally to counter this potential fraud. It is too early to say whether the Commission will take action on these cases. The Commission intends later this year to propose the application of reversed charges to the supply of certain goods or services on an experimental basis. This could be an opportunity to include carbon emission certificates in the list of services (if proved necessary),” he added. CA
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