UK tax authority arrests carbon fraud suspects

The UK's tax authority HM Revenue & Customs (HMRC) has arrested seven people on the suspicion of a £38 million VAT fraud involving the trading of carbon emissions allowances.

LONDON - The seven people, suspected of perpetrating VAT carousel fraud on carbon credits in the EU Emissions Trading Scheme (EU ETS), were arrested in the Gravesend and Greater London areas and 27 properties, both business and residential, were searched in early morning raids yesterday.

VAT carousel fraud occurs when goods are imported VAT-free and then sold on to domestic buyers at a price that includes VAT. The perpetrators then disappear without paying the tax to the government.

The UK government recently introduced a zero-rate of tax on carbon transactions in an attempt to tackle this type of fraud. The decision followed similar moves in Europe. In July, France's carbon exchange BlueNext saw an unexpected spike in volumes, which raised suspicions of fraudulent practices. As a result, the exchange introduced a zero-rating on carbon tax. A similar spike in volumes at Dutch carbon exchange Climex then prompted its government to implement a 'reverse charge mechanism' whereby the buyer is charged VAT rather than the seller.

Les Beaumont, deputy director of criminal investigation for HMRC, says the new zero-rating on carbon tax should prevent similar incidences in the future. "The government took decisive action to prevent this type of fraud recurring by zero-rating carbon credits for VAT," he says. "We always aim to recover the proceeds of crime, restoring that money to the public purse where it belongs. That is our intention in this and all similar cases."