Tax fraud attempts spread to UK power, gas-HMRC-INTERVIEW

Trade the News

Tuesday September 07, 2010 10:32:11 PM GMT

* Several "carousel" fraud rings uncovered

* UK tax authorities working with EU counterparts

By Daniel Fineren

LONDON, Sept 7 (Reuters) - British tax authorities have stopped several value added-tax (VAT) fraud attempts in the UK's wholesale power and gas markets over the last few months, an investigator from HM Revenue and Customs (HMRC) told Reuters on Tuesday.

European prosecutors are already investigating a suspected 5 billion euro ($6.36 billion) "carousel" tax fraud under the EU's carbon Emissions Trading Scheme.

Now HMRC has uncovered several attempts at missing trader fraud (MTIC) -- which occurs when companies buy goods in one country without paying VAT and sell them in another adding tax to the price but pocketing the difference for themselves -- in power and gas markets.

"There have been attempts that we have snuffed out quickly... They have tried to trade, we have identified it and through a number of measures we have managed to stop that," Steve Pope, deputy national coordinator for MTIC fraud at HMRC in London said in an interview.

"We have been monitoring the threat for some time, the attempts have been fairly recent, in the last few months... We are not talking about one, we are talking about a few."

He would not comment on whether any arrests had been made over the power and gas market fraud attempts, name any of the companies involved or any of the other countries involved in the chains.

REVERSE VAT CHARGES

HMRC is working with authorities in other European countries to stamp out the fraud which comes after it arrested at least 30 people in a carbon fraud investigation that began in 2009.

Britain's tax authority is to introduce reverse VAT charges for carbon emissions trading from Nov. 1, replacing a zero tax rate implemented last year to prevent carousel fraud, by making it the responsibility of the customer, rather than the supplier, to account to HM Revenue & Customs for VAT.

Pope said it was too early to say whether HMRC might introduce a similar measure for wholesale power and gas trading.

"We will consider all reasonable options," he said, adding that the government was working with the financial sector, energy companies and regulators to try to ensure the fraudsters were not able to infiltrate the market.

"Businesses must ensure that they apply robust risk management," he said, warning legitimate energy market players to watch out for potential fraudsters.

"The reason why the fraudsters are interested in this area is nothing to do with the gas and electricity itself. It's the fact that it's high volume, high value trade. Their idea is to trade as quickly as possible and steal VAT."

For a graphic on how the carbon credit fraud works click:

https://customers.reuters.com/d/graphics/UK_CRBVAT0809.gif (Additional reporting by Michael Szabo; editing by James Jukwey)

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