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Brussels, 29 September 2009

Fight against tax fraud: Commission proposes measures for a consistent response to carousel fraud in certain sectors

In responding quickly to new and worrying fraud patterns reported by several Member States today the European Commission adopted a proposal for an optional and temporary application of the reverse charge mechanism to supplies of certain goods and services, which will allow Member States to fight carousel fraud in a consistent manner across the European Union. The proposal notably covers greenhouse gas emission allowances that have been the object of VAT fraud during last summer. The proposal includes evaluation and reporting obligations for Member States which will allow a precise assessment of the efficiency of the measures.

László Kovács, Commissioner for Taxation and Customs, said: "VAT carousel fraud is against Member States' finances and they should have the means to combat it efficiently. However, actions taken against this fraud should be taken in a consistent manner across the EU and clear evaluation criteria should be established".

VAT fraud is a major concern for Member States' revenues and the correct functioning of the Internal Market. A common and particularly severe form of this fraud is VAT carousel fraud. This particular fraud costs billions of Euros to the EU finances every year. It is often organised on a large scale, sometimes by criminal organisations.

Carousel fraud is traditionally organised with small goods of high value. Recently, several Member States reported cases of carousel fraud on greenhouse gas emission allowances.

In order to allow Member States to take rapid action against this kind of fraud, the Commission has adopted a proposal for a Directive allowing the application of a reverse charge mechanism on supply of five categories of particularly fraud sensitive goods and services, namely: computer chips, mobile phones, precious metals, perfumes and greenhouse gas emission allowances.

The possibility for all Member States to opt for the application of reverse charge under the same conditions to a limited list of goods and services provides Member States with the necessary tool to tackle worrying fraud phenomena in a flexible manner while ensuring consistency in the response Member States give to carousel fraud and avoid fraud relocation. It will also give valuable experience for evaluating the efficiency of such a measure.


A common form of fraud consists in charging VAT to the customer without accounting for it. The taxable customer is, in principle, still allowed to deduct this VAT. The result is a credit/refund from the Treasury to the customer.

On a larger scale, this mechanism has sometimes developed into MTIC (Missing Trader Intra-Community fraud) or carousel fraud.

Under a reverse charge mechanism, the supplier does not charge VAT but is accounted for by the customer who, if a fully taxable person, deducts this VAT at the same time. The need for an effective payment to the Treasury is therefore removed as well as the theoretical possibility to commit this type of fraud.

However, the proposal is not intended to change the fundamental principles of the VAT system and therefore remains limited in scope, both as regards the number of goods/services and the duration of the application period. The type of supplies to whom the scheme could apply is based on recent experience with missing trader fraud.

Fraud in relation to greenhouse gas emission allowances

The EU emission trading system (ETS) was launched in 2005 and is now by far the largest multi-national scheme in the world (73 % of the value of the global carbon market in 2008). The scheme is a "cap and trade" system whose objective is to cut greenhouse gas emissions by allocating emission allowances (allocated for free or auctioned) which can then be transferred between operators. Phase 3 of the ETS (2013-2020) will incorporate a yearly decrease of the cap of 1.74 % per year, arriving at a reduction of 21 % below the 2005 emissions.

Transfers of allowances between taxable persons are considered as a supply of service and are taxable at the place where the recipient is established.

During the summer of 2009, a number of suspected cases of fraud were detected in several Member States and have led the Commission to take swift action by including the greenhouse gas emission allowances in the list of supplies to which a (domestic) reverse charge system could be applied.

The text of the proposal is available at this web link:

Further information on the strategy to improve anti-fraud measures can be found at:

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