The German Federal Central Tax Office has found signs of possible fraud in Europe’s biggest power and natural gas market that may be similar to the value-added tax scam that roiled carbon permit markets.
Tax authorities warned market participants of the cases and the risks of engaging in illegal trading activities, in a document dated May 2013 and posted on the website of NetConnect Germany GmbH, the German gas market area manager. Bundesnetzagentur, Germany’s grid regulator, also posted a warning on its website.
VAT fraud in the European carbon market involved chains of bogus import companies set up to reclaim taxes that had never been paid. A Frankfurt court in 2011 convicted six men for evading a total of 260 million euros ($335 million) in taxes on carbon emission trades using the same tactics.
“We are taking this issue for our members and their customers seriously,” Frank Brachvogel, a spokesman for BDEW, the Berlin-based lobby group for Germany’s utilities, said today by e-mail. “BDEW has actively been watching the market for several years and constantly exchanges information with the respective authorities and market participants, also on a European level.”
Germany’s power and gas markets were liberalized in 1998. About 295 billion euros of German gas and power contracts were handled by brokers in London last year, according to Bloomberg calculations based on average prices and volume data from the London Energy Brokers’ Association.
“All honest market participants must have an interest in putting an end to wrongdoing by fraudsters as swiftly as possible,” the tax office said in the document. “The predecessor of the value-added tax fraud in the energy market was the VAT fraud in carbon permit trading.”
European Energy Exchange AG, continental Europe’s biggest electricity bourse, can’t “completely eliminate the possibility” that its power and gas markets can be misused in fraud chains, Eileen Hieke, a spokeswoman based in Leipzig, Germany, said today by e-mail. It hasn’t found any suspected cases, she said. The exchange is seeking a tax-rule change in the power and gas markets that would make the buyer responsible for paying the VAT instead of the seller.
“Some traits of the power and gas trade may make the fraud attempts in these markets appear especially attractive,” the tax office said. “It can be expected that also in the power and gas markets, trades are placed internationally, to also make it harder to track deals.”
EnBW Energie Baden-Wuerttemberg AG (EBK), Germany’s third-biggest utility, has no knowledge of tax fraud in the German energy market and hasn’t been contacted by authorities, Friederike Eggstein, a company spokeswoman based in Karlsruhe, said today by phone.
George Oppermann, a Dusseldorf-based spokesman for EON SE, Germany’s biggest utility, declined to comment when reached today by e-mail. Thorsten Ziegler, a Hamburg-based spokesman at Vattenfall Energy Trading GmbH, didn’t respond to an e-mail and three phone calls today seeking comment.
“We comply with all relevant authorities regarding our trading activities,” Michael Murphy, a spokesman for RWE Supply and Trading GmbH in Essen, said today by e-mail.
German law allows finance ministries in the federal states to search offices or premises of companies in the case of suspicions of tax fraud. Federal finance ministries in Hesse and North Rhine-Westphalia weren’t immediately available to comment.
Germany’s tax office wasn’t able to provide additional details of the potential fraud, Annika Deitmer, a Bonn-based spokeswoman said today by phone.
“According to our knowledge, no concrete cases of fraud have happened in Germany so far,” BDEW’s Brachvogel said.
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