The Norwegian Ministry of Finance has become the latest European country to try to counter VAT fraud in connection with the trading of carbon emissions allowances (carbon credits). The news follows a series of arrests in connection with alleged fraud cross Europe amid reports from EU authorities that it might have cost taxpayers around €5bn. Pollution permits were set up in the European Union in 2005 in a bid to cut carbon emissions, but the lack of harmonised tax regimes across the EU, had created a loophole for fraudsters. In a draft legislation proposal, the Norwegian government has now presented changes to its VAT Act. It plans a reverse charge mechanism for domestic sales of emission allowances to businesses and to the public sector, which will come into force as soon as possible after a decision is made in the Parliament. Norway’s finance minister Sigbjørn Johnsen, said: “Based on recently reported information about possible large scale fraud in the EU and actions taken in other European countries, the Government has decided that action is necessary to limit the risk of fraud in Norway.“Other countries such as the UK and Denmark have already altered legislation. Just this week, Romania banned carbon emissions trading in its over-the-counter derivatives market. The EU Commission has presented a proposed directive to let member states to temporarily introduce a reverse charge mechanism. Norway explained that due to high prices – and thus high tax bases – and swift transactions, emissions allowances are vulnerable to fraudulent traders who may be able to collect large sums of VAT before disappearing. Norway takes part in the EU Emissions Allowances Trading System (ETS) and has the same VAT treatment as the EU in this area. As the number of nations taking actions grow, the risk of fraud moving to Norway is likely to increase. Last month three UK citizens and a Dutch citizen were charged in a €3m money-laundering carbon credit fraud case in Belgium while seven were arrested in a suspected £38m fraud in London in August. In December, French authorities arrested four people suspected of a €156m fraud on France’s BlueNext exchange.