Businesses that unknowingly participated in a suspected carbon trading scam could face millions of dollars in legal fees and penalties, reports the UK Sunday Times. Any company involved in the scheme may be subject to an audit.
Uncovered by HM Revenue & Customs (HMRC) in January, this “carousel fraud” 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, according to the Sunday Times.
The potential liability for businesses is significant because the government has the right to reclaim the VAT on any carbon trade it thinks is suspicious, and companies can also be penalized retroactively for three years, reports the UK newspaper. The average value of a single carbon trade is £50,000 (about $81,000), according to the article.
HMRC’s advice to businesses is to know your customer, supplier and products, but business groups said this was not good enough because anyone can register as a carbon trader, according to the Sunday Times.
Other countries also expect they will face similar challenges. As an example, Australia recently gave its federal police the ability to enter company premises and request paperwork in order to prosecute a new range of climate offenses including bogus carbon offset schemes and under reporting of carbon emissions.