LONDON There are "clear indications" of fraudulent activity in the Dutch carbon emissions market, the Dutch ministry of finance said regarding its decision on Tuesday to take steps to prevent value-added tax (VAT) fraud.
"Specifically carousel fraud, where the booked turnover tax is not paid but nevertheless deducted from tax in the tax return," the ministry said on its website.
To prevent possible fraud, the carbon permit buyer, instead of the seller, will pay VAT from Wednesday.
"In order to do away with uncertainty for buyers, I have decided that entrepreneurs who sell emissions rights will simply mark the bill with 'turnover tax transferred'.
The buyer will then insert the tax into his or her tax return," Dutch deputy finance minister Jan Kees de Jager said in a statement.
Carousel fraud, also called missing trader fraud, involves fraudsters importing VAT-free goods from other countries, selling them domestically and charging VAT, then disappearing without paying the tax to the government.
France has taken a different approach. The Budget Ministry there made carbon permits exempt from VAT in order to prevent carousel fraud related to the French emissions exchange, a government source said in June.
The Paris prosecutor's office later confirmed a probe was under way.
Trading in European Union carbon permits on Dutch exchange Climex grew by 49 percent in June, despite an overall drop in trading volumes across all European emissions exchanges, recent data showed.
Some observers expressed concern over the rise in Climex's spot volumes after a spike in French emissions exchange BlueNext's volumes sparked rumors of tax fraud. They said fraudsters might target the Amsterdam-based Climex.
"We don't see carousel trading happening on our platform," Axel Posthumus, Climex chief executive, told Reuters. "But we are very happy with the decision because now everyone can be sure that when he trades on Climex there won't be any problems."
Climex applied the new rule to its exchange at 3 a.m. EDT on Wednesday.
"We already implemented our own measures to ensure the spot exchange was not subject to VAT fraud, but it is very helpful that the Dutch government substantially supports the market with this decision. We hope that other countries will follow suit, or that action will be taken at EU level," Posthumus added.
The EU Commission said it had not been officially notified of either the French or Dutch initiatives.
The Commission intends to propose later this year that a reserve charge be applied to the supply of certain goods and services on an experimental basis, it said.
"This could be an opportunity to include carbon emission certificates in the list of services, if proved necessary," Maria Assimakopoulou, spokeswoman for EU Commissioner in charge of Taxation and Customs Union Laszlo Kovacs told Reuters.
(Reporting by Nina Chestney; Editing by Anthony Barker)