STXYOUEVENT

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STXYOUEVENT

• VAT Missing Trader Fraud in carbon emissions
  trading
• Insight in developments in France, The
  Netherlands UK
• Rogier Vanhorick, Partner at Ernst Young LLP
• Head of EY Global Indirect Tax Energy
  Sustainability Group
• Amsterdam, September 2009

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(No Transcript)
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Recap of events

• Last year growing volumes in EUA on Bluenext
• September 30th 2008 CEO Andrei Marcu of
  Bluenext resigns
• Bluenext standard mail to all participants to
  provide counterparty list
• March 2009 Dutch Fiod notes possible VAT
  Carrousel fraud with emissions credits
• June 2009 blogspot on possible VAT carrousel
  Fraud by a trader
• 8th June French Bluenext introduces exemption
  (without credit 135 1f EU Directive/261 C. 1.e
  CGI Instruction of June 10, 2009, 3L-1-09)
• 14th July Dutch follow with measure for reverse
  charge applicable as from July 15th (Decree by
  State Secretary De Jager)
• 30th July UK Tax authorities introduce VAT zero
  rate for emissions credits (Group 17 added to
  Schedule 8 to the VAT Act 1994)
• 19th August UK Arrests of supected fraud in CO2

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VAT carrousel fraud - simple
FR
NL
Invoice Supply of CPUs Value EUR100 0
VAT EUR - VAT nr Total EUR 100
Invoice Supply of CPUs Value EUR
90 19,6 VAT EUR 18 Total EUR 108
Margin of 8
Supply of goods Usually high value High price
transparency Light and easy to transport
Supply of goods Domestic subject to VAT
Local Customer
Trader Country A
(Missing) Trader
Invoice Supply of CPUs Value EUR
100 0 VAT EUR 0 VAT nr Total
EUR 100
X
No remittance of EUR 18
VAT return Supply Value VAT IC
Acquisition 100 IC Acquisition VAT
19,6 IC supply to Cust A 100
0 Deducttion of ICA VAT -19,6 Total due to
authorities 0
Customer in country A
Fake
Tax Authorities
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Missing trader VAT fraud
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The old world - traditional characteristics

• High value, high price transparency
• Low weight and small (easy to transport in
  circle)
• Typical goods Computer parts like CPUs, mobile
  phones, metals such as gold/silver/platinum
• Missing trader disappears after 3 to 6 months
• Country links EU UK, France, The Netherlands,
  Belgium
• Country links non-EU India, UAE, HK, Tax heavens
  (Bermuda, Virgin Islands, Dutch Antilles)

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The new world emissions credits?
FR
NL
Invoice Supply of EUAs Value
EUR100 VAT reverse charged VAT nr Total
EUR 100
Self Invoice Supply of EUA Value EUR
100 19,6 VAT EUR 19,6 Total EUR
119,6
Supply of EUA Art 56 Services for VAT Subject to
reverse charge
Supply of EUA Domestic subject to French VAT
Bluenext France
Trader Country A
French buyers
X
?
No remittance of EUR 19,6?
Recovery of EUR 19,6 input VAT
VAT return Supply Value
VAT Reversed VAT 100
19,6 Deducttion of reversed VAT -19,6 Total due
to authorities 0
Fake invoice Cross border Reversed ?
?
Customer in country A
Tax Authorities
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Or hiding the real carrousel?
VAT return Supply VAT Local VAT due
19,6mio Total due to authorities
19,6mio
Tax Authorities
FR
NL
Invoice Supply of EUAs Value
EUR100 VAT reverse charged VAT nr Total
EUR 100
Self Invoice Supply of EUA Value EUR
100 mio 19,6 VAT EUR 19,6 mio Total
EUR 119,6 mio
Remittance EUR 19,6
Supply of EUA Domestic subject to French VAT
Supply of EUA Art 56 Services for VAT Subject to
reverse charge
Bluenext France
Trader Country A
French Buyers
Supplier Country A
French Customer
Supply of goods 10 million EURO 1.960.000 VAT
X
No remittance of EUR 1,96 mio
Tax Authorities
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The new measures in FR, NL, UK
Exempt from VAT (no VAT)
French trader
Bluenext France
FR
Supply EUA EUR 100 VAT exempt Total 100
Without credit!!! 135 1f EU Directive/261 C.
1.e CGI Instruction of June 10, 2009, 3L-1-09)
Reverse Charged (no VAT added by supplier Climex
makes self assessment)
NL
Dutch Trader
Climex NL
Supply EUA EUR 100 VAT reverse charged Total 100
VAT Taxable
0 VAT
UK
UK Trader
Climex UK
Supply EUA EUR 100 0 VAT Total 100
VAT zero rated with credit by adding emissions
in Group 17 to Schedule 8 to the VAT Act 1994
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What does it mean for you

• The past and the future

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Liability for VAT assessment by authorities?

• The important question for past trades
• Can you be held liable for VAT loss further up
  the chain?
• 1 material test
• counterparty check
• - VAT nr. of the customer
• - Evidence of customer establishment in other
  country
• 2 subjective test good faith
• - Case law
• - Commission proposal joint and several
  liability

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Subjective test good faith

• Case law

Good faith
Knew or should have known
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Subjective test

• Case law

How far should you go?
Not further than is reasonably possible
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Subjective test good faith

• Case law

Good news There must however be real loss
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Subjective test good faith

• Comission proposal per 2010

Article 205 In the situations referred to in
Articles 193 to 199 and Articles 202, 203 and 204
(intra EU transactions), Member States may
provide that a person other than the person
liable for payment of VAT is to be held jointly
and severally liable for payment of VAT.

• This may go against current case law and will
  provide a weapon for tax authorities to go
  further
• Even if there is no direct loss in your chain.
• And the test for good faith remains subject to
  various interpretation

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Conclusions

• Thorough counterparty check
• Material test for reverse charge (VIES,
  establishment)
• Subjective test build your case
• At the end of the day awareness and common sense

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Thank you
Rogier Vanhorick Partner Indirect Taxes Ernst
Young Rotterdam T 31 10 4068887 M 31 6
29084747 E rogier.vanhorick_at_nl.ey.com