Spain police arrest nine in CO2 tax probe

MADRID (Reuters) - Spanish police on Tuesday said they had arrested nine people on charges of avoiding 50 million euros ($67.54 million) in tax linked to trading in carbon credits.

The arrests came after Spanish prosecutors announced last week they were launching an investigation into alleged tax fraud.

The investigation is part of a wider EU probe into an estimated 5 billion euros ($6.75 billion) fraud where companies bought carbon emissions permits in one country without paying value added tax, and then sold in another adding tax to the price but pocketing that difference for themselves.

“The operation began due to a report issued by Europol, which had already undertaken similar investigations in countries like France and the United Kingdom,” a Civil Guard statement said.

Norwegian police charged five men on Monday as part of a European-wide probe into so-called carousel fraud related to the European Union’s Emissions Trading Scheme.

Carousel fraud occurs when goods, in this case greenhouse gas emissions credits -- known as EUAs -- are bought and imported tax-free from other EU countries, then sold to domestic buyers, charging them VAT.

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The sellers then disappear without paying the tax to governments.

For a graphic on how carbon credit carousel fraud works, see here

In a separate statement on Tuesday, Spanish tax authorities estimated Spanish companies handled more than 350 million euros in EUA carousels between May and October 2009, when tax laws when changed.

“Once this rule was applied, not only did VAT fraud in this sector disappear in Spain, but also, transactions in the Spanish CO2 market fell drastically,” the Tax Office said.

“Nonetheless, the fraud may continue to be committed against those countries in the (European) Union which have not modified their laws.”

The Tax Office added that the carousel consisted of setting up a chain of international companies, headed by “a straw man, generally impossible to find.”

The Tax Office added that it was continuing inquiries into whether the same chains of companies had moved into Spanish gas, electricity or other commodities markets.

Reporting by Martin Roberts; Editing by Amanda Cooper