First arrests over 'carbon credits tax fraud'

Seven people have been arrested over an alleged £38 million tax fraud involving the trading of carbon credits.

By Jon SwainePublished: 7:00AM BST 20 Aug 2009
They are the first people in the country alleged to have made money through a so-called “carousel” VAT fraud involving carbon emissions allowances.
Under an EU scheme designed to reduce pollution, companies producing large amounts of carbon dioxide are given an allowance for the amount they can emit.
If they want to emit more, they must buy extra allowances - which are commonly known as “carbon credits” - from companies who have some left over.
One credit allows the buyer to emit one ton of carbon. The global carbon market is worth about £77bn a year, according to the World Bank.
It is thought that the suspects imported large volumes of the carbon credits VAT-free from other countries.
They then allegedly sold the credits to British businesses – moving them around tax jurisdictions like a “carousel” – having marked up the price with VAT.
The businesses purchasing the credits would then have been able to claim the VAT back from HM Revenue & Customs. However, it is alleged that the suspects never gave the VAT money to HMRC, leaving the taxman out of pocket.
The fraud is more typically carried out in a similar way with electrical goods, including mobile phones and computer chips.
It is alleged that the proceeds were used to fund lavish lifestyles of the people involved with the alleged fraud. The suspects are thought to have spent some of the proceeds of their alleged fraud on luxury cars, an HMRC spokesman said.
The spokesman said that six men and a woman were arrested following early morning raids in Gravesend, Hounslow, Southall, Isleworth and Erith in west London and Kent. A total of 130 officers raided 27 business and residential properties.
He added that officers from Europol, the European Union law enforcement organisation that handles criminal intelligence, was helping with the inquiry.
Les Beaumont, the HMRC’s deputy director of criminal investigation said: "HMRC investigates all criminal attacks on the tax system, halting theft of revenue, gathering evidence and supporting prosecutors in bringing offenders before the courts.
"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 similar cases.”
Last month the Government removed VAT from carbon credits traded within Britain to prevent the risk of such frauds. The French government had already done so following evidence of fraud there.
Mr Beaumont said: "The Government took decisive action to prevent this type of fraud recurring by zero rating carbon credits for VAT."
The Netherlands has introduced rules forcing the buyer of carbon credits, rather than the seller, to take responsibility for paying tax.
HMRC can already require buyers of the credits to prove that they took “reasonable care” to check they were dealing with a bona fide company, and withhold VAT refunds if it is not satisfied.