Has the EU’s “carbon trading” market gone up in smoke? Hartley Foster investigates
Transfers of EUAs between taxable persons under the European Union’s Greenhouse Gas Emission Trading System (ETS) are treated as a supply of services for VAT purposes.
They are taxable where the recipient of those services is established. Given their high value and the fact that they can be easily traded in (lightly regulated) specialised markets, this makes the carbon trade market susceptible to what is known as “carousel” or “MTIC fraud”.
The origins of MTIC fraud
The fons et origo of MTIC fraud was the introduction of the EU’s internal market in 1993.
Completing the internal market became a political priority in the early 1980s. The EC Commission proposed that the “origin system” be introduced in relation to supplies between member states. This would involve charging VAT in, and at the rate applicable in, the country of origin of the goods and services. For this system to work effectively, rates of VAT would need to be approximated throughout the EC. For this reason (and others), the Commission’s proposals were not accepted by
