If a company trading in CO2 allowances had a subsidiaries in United Kingdom, France, Netherlands, Romania and Poland, only as regards intra–Community, cross–border transactions all the subsidiaries would have an equal level-playing field.

When we take into consideration allowances traded domestically in each of these countries, each of the aforementioned subsidiaries would have to apply different legal regime. Such a situation hardly can be regarded as an acceptable from a common market point of view.


But the odds are that nothing will change in the near future. The new draft of amendment to the VAT Directive (proposal for a Council Directive amending Directive 2006/112/EC as regards an optional and temporary application of the reverse charge mechanism in relation to supplies of certain goods and services susceptible to fraud) provides for the measures, which are only of optional and temporary nature.


As we pointed out already, four different approaches and four different VAT treatments are being taken now across the European Union in that matter:

1) France on 8 June 2009 had exempted the allowances from VAT (treating them as transactions involving shares),

2) on 14 July 2009 the Netherlands had opted for a “reverse charge”, requiring all traders (including local transactions) to account for VAT at the time of purchase,

3) Britain introduced legislation to zero rate the supply of emissions allowances within the UK with effect from 31 July 2009,

4) other member states charged a standard rate of VAT and the absence of exemption is the position adopted by the majority of Member States
(cf. “Current provisions for VAT treatment of CO2 transfers in the EU” (published in October 2009).

In February 2010 Romania's securities regulator has defined European Union carbon permits as financial instruments and, as a consequence of this move, trading in EUAs in Romania is  now exempt from VAT. So – the eventual outcome of the solutions taken by the Romania and France is the same – exemption from VAT, but the methods of achieving this effect are different (only in Romania EUA’s are considered financial instruments - cf. "EUAs traded on the spot market considered financial instruments (in Romania)".


In turn, 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 EU-wide exemption of the supply of emission allowances from VAT while allowing for deduction of related costs.”

The proposition for the new Directive provides for an option for Member States to choose reverse-charge mechanism for domestic trade in CO2 allowances - in such a case VAT due on supplies is payable by the person to whom those goods and services are supplied.This measure may be introduced and applied only until 31 December 2014 and for a minimum period of two years (see: the proposition of a new Article 199a of the Directive 2006/112/EC.

In order to overcome the threats of VAT fraud the new Directive treats in a special manner certain categories of goods and services (inter alia CO2 allowances which are services in the meaning of the VAT Directive). Furthermore, the Community legislature presupposes that these categories can be changed in the future. Such an approach seems to be extremely casuistic and it lacks of a general and cohesive attitude, taking into account the overall VAT system as well as EU ETS scheme. The temporary nature of the proposition also creates instability – which EU ETS needs so much recently.


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