UnLevel VAT Playing Field

Still no univocal VAT policy regarding the EU ETS is incomprehensible and irresponsible.
2009 will by many active in the EU ETS be remembered as the year of the alleged carousel VAT fraud or missing trader fraud.

So far there have not been many convictions yet, but the effect on the market has been enormous. The EUA trading volumes on the exchanges grew during the second quarter of 2009 up to 435 million tonnes. In comparison: the total EUA trading volumes on exchanges during all of 2008 was 224 million tonnes and during 2007, 38 million tonnes; the total EUA allocation in Europe is 2,000 million tonnes. This spectacular growth of the EUA spot trading volume could not be explained because of industrial compliance needs. The industrial trading demands should actually be more sparingly because of, for instance, the economic crisis and the possibility to bank. Another remarkable development was that trading services had to be swift. During 2009 the pressure was on to have transactions completed within one hour.

Therefore at some stage suspicions on the market and amongst authorities rose that the trading was not a result of compliance trading or speculation but because of VAT. Selling parties sold EUAs nationally with legal VAT charges applying to the sale. Because of the large transaction amounts, the VAT charges the Treasury was still due to collect from these sellers, was enormous. The question is, were these charges being paid to the Treasury at all? There is a major concern that this was not the case. As a consequence the countries in question lost out on large amounts of tax revenue, which harms the tax payer in the end. And respectful organisations can unwillingly become involved in a fraudulent trading cycle.

Because of the large spot trading volumes in France, it was a logical step by the French Government to be the first to take VAT related measures, followed by the Dutch, British and later on Spanish Authorities. These Governments took decisive action already before the summer of 2009 and before the European Commission had taken a stance. Technically the measures are quite different but they all result in the same; in these countries VAT does not apply any more to Carbon Invoices, and therefore fraud with VAT declarations is no longer possible and the national Treasury does not miss out on any demands. Apart from these Governmental measures, a number of market parties themselves also took (radical) actions. Climex, for instance reviewed its contracts, sharpened the registration criteria and is checking existing members against the new criteria. Climex now refuses membership to organisations who can or will not meet the (stricter) criteria. This however does not solve or prevent the problem.

As a consequence of the measures certain governments have taken, trading volumes have plummeted during the fourth quarter to 150 million tonnes.
The question rises now, if this is the ‘real’ trading volume. In theory, fraud is still a possibility in Europe. Not in France, The Netherlands, the United Kingdom or Spain, but in the other European countries. Should the trading have been driven by VAT motives, then it is logical the trading will shift to those countries where VAT on carbon credits is still applicable. This will harm the tax payer in that respective country, but also market parties like Climex, because credible organisations and volume are drawn towards countries were fraudsters are still active. It will also harm the EU ETS in general because the image of a ‘cap and trade’ system is already under pressure after disappointing results in Copenhagen.

For this reason Climex finds it incomprehensible and even irresponsible why European Authorities have not yet taken European-wide measures, or why the remaining Member States have not yet done so on their own accord.
In a letter to the European Authorities, Climex has brought this concern forward, but so far has not received an answer.