December 17, 2010 / 1:43 PM / in 8 years

UPDATE 1-Italy tax police probe VAT fraud in carbon trading

* Numerous small firms involved in “carousel” fraud -police

* Fraud led to 500 million euros unpaid VAT charges in Italy

* Probe linked to international carbon fraud investigation

* Charges may include tax fraud, money laundering -police

MILAN, Dec 17 (Reuters) - Italy’s tax police is investigating numerous small Italian firms for value-added tax (VAT) fraud in carbon trading resulting in 500 million euros ($666 million) of unpaid tax, it said on Friday.

The police did not name the companies in its statement but said the firms, despite their small size, had been involved in very large transactions taking advantage of a VAT exemption on purchases of carbon permits from European Union sellers.

Under the scam, otherwise known as “carousel fraud” and under investigation in several other European countries, perpetrators imported carbon permits VAT-free from other countries, then sold them to domestic buyers, charging them VAT.

The sellers were preparing to disappear without paying the collected tax, police said.

The price of carbon permits, traded under the EU’s Emissions Trading Scheme (EU ETS), fell to its lowest level since July 30 on Friday.

The EU ETS, designed to limit greenhouse gas emissions and combat climate change, caps heavy industry’s emissions and distributes a quota of permits which can be traded on exchanges.

Police said they were looking into “numerous companies which, by means of fictitious transactions with greenhouse gas emission quotas, have been carrying out an enormous fiscal fraud aimed at VAT evasion.”

The companies face possible charges including fiscal fraud, emission of fake receipts and money laundering, police said.

European prosecutors are investigating a suspected 5 billion euro carbon trading tax evasion case, known as “carousel” fraud, across at least 11 countries.

EXPLOITING LOOPHOLE

Under current Italian regulations, sellers of carbon permits are responsible for paying VAT charges for carbon trading. That opens up room for fraud as the VAT can be pocketed.

Police said they have carried out more than 150 searches at the companies, which are registered in nine Italian regions, and seized about a hundred bank accounts where thousands of emission permits had been deposited. Italy’s energy markets operator GME suspended spot trade in European carbon permits on Dec. 1 after it said it was looking into “abnormal trading” in recent market sessions and “presumed irregular or unlawful behaviour,” following record trade in undervalued spot carbon permits last month.

Italy’s government is looking to create a law to combat VAT fraud in carbon trading and resume suspended operations on the local market, Industry Ministry Undersecretary Stefano Saglia told Reuters last week. (Reporting by Svetlana Kovalyova; editing by Anthony Barker)

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