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Six Jailed In EU Carbon Trading Carousel Fraud Probe

by Ulrika Lomas, Tax-News.com, Brussels

28 December 2011


A Frankfurt court has sentenced six individuals to as long as seven years' imprisonment for tax fraud as part of a larger European Union probe to bring those who profited from manipulating the trade bloc's carbon emission permit trading platform to justice.

The case relates to carousel fraud, known formally as Missing Trade Intra-Community Fraud. In the case, fraudsters acquired permits within the European Union free from value-added tax. During the period in question, European Union VAT rules stipulated that the seller of the permit was responsible for remitting the VAT placed on its resale. The individuals in question acquired permits free from VAT under European Union rules and resold the permits, reportedly to Deutsche Bank, with VAT applied, only to disappear without remitting the tax - said to amount to EUR300m - to German authorities.

The name carousel fraud derives from the typical circular chain of transactions set up by the criminals to maximise profits, and often entails sham paperwork and temporary companies to engage in the trades. In order to hide the fraud, the circle sometimes involves compliant honest traders.

The six individuals implicated are expected to be the first of a number to be sentenced over the coming months following an EU-wide probe that has engaged thousands of investigators.

Deutsche Bank employees are being investigated for involvement, with the bank stating that it is undertaking its own independent review of the case but had thus far not uncovered any wrongdoing by employees. Under the current VAT Directive, member states may request that a person other than the person liable for the payment of VAT is to be held jointly and severally liable for the payment of VAT. Deutsche Bank has set aside EUR310m in the event that it will have to compensate the German government for the unremitted revenues.

Incidences of carousel fraud in relation to emission permits have declined substantially as European nations have introduced reverse charge mechanisms to prevent manipulation of their value-added tax regimes. The case relates to transactions made during 2009 and 2010.

TAGS: individuals | court | compliance | tax | business | tax compliance | tax avoidance | law | employees | enforcement | Germany | penalties | trade

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