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RBS burned by £86m carbon credit fraud trial ruling

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21st Mar 2017
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A preliminary hearing has found that the Royal Bank of Scotland should face a tax tribunal, accused by HMRC of reclaiming £86m of VAT for carbon credits to which it was not entitled, with part of the alleged activities taking place while the bank was under public ownership.

According the findings (Royal Bank of Scotland Group v HMRC [TC05713]), the case centres on a carbon credits carousel fraud, where traders at the bank bought and sold EU pollution permits in order to register a VAT charge without paying the VAT, and then reclaimed the charge when the credits were sold.

The preliminary hearing did not pass judgement on the case itself, but it dismissed RBS’s claim that HMRC’s £86m assessment was raised incorrectly.

The carbon credits in question were purchased in France, imported into Britain via allegedly fake companies, which then moved them on to other allegedly fake firms in order to reclaim the VAT.

Some 536 trades were conducted by two traders at the bank commodities division RBS Sempra between June 8 and July 6, 2009, overlapping the UK government’s £45.5bn bailout of the bank in 2008.

The traders, who are no longer employed by RBS, bought 43m carbon credits linked to allegedly fraudulent companies, then sold them abroad before claiming a VAT rebate from the Revenue, to which they were not entitled.

In September 2012 HMRC served RBS Sempra an assessment of £86m, as it claimed RBS was not entitled to reclaim the input tax as it considered that the deals were connected to fraudulent evasion of VAT, namely Missing Trader Intra-Community (MTIC or carousel) fraud, and the bank knew or should have known this, and is liable to repay the VAT.

The assessment was from 8 June because that was the date on which the French carbon credits exchange closed down resulting, in HMRC’s view, general knowledge amongst carbon credits traders of the risk of MTIC fraud. The end date for the assessment was 21 July because RBS ceased to trade in carbon credits on that day, although the bank was later to recommence trading in them once the VAT reverse charge mechanism was introduced.

According a letter from HMRC to RBS, the Revenue believed it had “grounds to deny RBS the ability to reduce its VAT liability by VAT paid during 2009 because it knew or should have known that certain vendors in the trading chain did not remit their own VAT to HMRC.”

A Mail on Sunday report highlighted one email one sent by RBS’s own money laundering unit warning that the bank was being targeted by ‘carousel trading fraudsters’.

In the same report the traders, who are no longer employed by RBS, are accused in the documents of “recklessly failing to make such inquiries as an honest man would”.

In view of the size of the assessment and the complexity of the case, the next hearing could move straight to the Upper Tier Tribunal, but a verdict is not expected for at least six months.

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