EU-wide exemption of the supply of emission allowances from VAT while allowing for deduction of related costs is extremely needed for the cohesion of the carbon market.
Media (Reuters) released lately an information that Romania's securities regulator has defined European Union carbon permits as financial instruments.
Common practice in the EUETS throughout Europe is that EUAs traded in the spot market are considered goods (as opposite to EUA futures considered financial instruments).
Such a move of a Romanian regulator is a surprise. Additionally, Reuters cited the comment of the Sibiu Monetary-Financial and Commodities Exchange’s (SIBEX) deputy director Darius Cipariu, who had said that the new ruling prevented foreign firms from trading Romanian EUAs without joining SIBEX (currently the only Romanian exchange licensed to trade EUAs).
It is also said that the ruling prohibits any unregulated Romanian firm not allocated EUAs under the EU scheme from trading them.
According to Reuters, SIBEX's Cipariu said the ruling reduces the threat of VAT fraud and EUAs in Romania are now exempt from VAT.
I’ve pointed out already complications in the VAT taxation of the EUA’s trading resulting from so called “carousel fraud” (cf. "Current provisions for VAT treatment of CO2 transfers in the EU") .
The move of the Romanian regulator recalls what IETA stated in its communication of 11 February 2010, “To deal with recent cases of VAT fraud in the carbon market, an EU-wide comprehensive change in the VAT status of carbon trades is required. This could consist in an EU-wide exemption of the supply of emission allowances from VAT while allowing for deduction of related costs.”