Germany Lost EUR 850 Million to Carbon Tax Fraud

March 8, 2011 Taxation in EUTaxation in Germany

CO2 emissionsGermany has lost hundreds of millions of Euros in tax revenues to frauds involving carbon emissions trading.

On March 7th Alexander Badle senior prosecutor for the Office of the Attorney General of Germany issued a statement, saying that tax fraud on carbon dioxide emission trading has cost the government an estimated total of EUR 850 million in lost revenues. The figure emerged throughout the course of the ongoing investigations into frauds allegedly committed by 120 companies operating in Germany and registered across Europe and in the United Arab Emirates.

The investigations were prompted in 2009 when evidence arose of multinational companies across the EU using “carousel fraud” to bypass taxes on carbon emissions trading. Initial Interpol investigations estimated that the schemes cost EU tax authorities a cumulative EUR 5 billion.

According to the statement, the fraud exploited EU rules which mandate that the movement of goods between EU member states is not subject to VAT. The schemes involved a company purchasing carbon credits from an overseas seller, with no VAT liabilities on the transaction, and then a series of companies would repurchase the credits and receive VAT refunds.

The carbon trading system in the EU sets a maximum cap on pollutants that companies are allowed to emit. Any company wishing to exceed this limit must purchase quotas for additional carbon emissions from less polluting firms. The system is designed to provide a financial incentive for commercial enterprises to lower their emissions levels.

Alexander Badle said that 180 people are being investigated for their roles in the carousel schemes, with four people already in custody. Alexander Badle went on to say that seven people who are being investigated are employees of Deutsche Bank AG. The bank has replied, saying that an investigation conducted on its own behalf has shown no evidence of wrong doing.

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