EU’s Reverse VAT on Carbon Offsets Intended to Reduce Fraud

October 7, 2009

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To cut down on fraud in the carbon trading market, the European Union is proposing a reverse payment scheme for value added taxes (VAT) on carbon trading, reports Carbon Offsets Daily.

The EU directive would have a company send paperwork to the Treasury paying the VAT and at the same time requesting a refund. Effectively, the company would pay nothing at the time.

The directive, which will be phased in over the next couple months, will not be the only method for companies to pay for their carbon emissions, the article notes.

For instance, the UK has implemented a zero VAT rate on carbon trading to minimize fraud.

The EU’s new scheme will last until December of 2014.

Earlier this year, the UK uncovered “carousel fraud,” which involves carbon offsets that are imported into Britain without paying value added taxes (VAT) and then sold to companies, each of which is liable to pay the standard rate of VAT on the purchase, which as of last year was 17.5 percent.

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