14 July 2010
Luxembourg developments on the transfer of carbon emission rights
Member States have limited their emission rights in order to comply with the Kyoto Protocol and consequently to reduce the climate change impacts. These emission rights can be traded on the market. These transactions are considered as taxable supplies for VAT purposes.
Over the last years, carbon credit frauds have been used as a variation of the so-called carousel fraud. Based on studies, these frauds are amounting to several billion Euros. It is even estimated that in certain countries, more than 90% of the market volume was caused by fraudulent transactions.
These fraudulent transactions are for example performed as follows:
- Opening of a trading account in a national carbon credit registry;
- Sale of the credit allowances from outside the EU or from a Member State “A” to a company established in Member State “B” (VAT to be declared by the recipient in Member State “B” under the reverse charge mechanism - no VAT on the invoice);
- Sale of the credit allowances to Member State “C” (VAT to be declared by the recipient in Member State “C” under the reverse charge mechanism - no VAT on the invoice);
- The company established in Member State “C” resells the credit allowances locally (application of VAT of the Member State “C” by the supplier).
- The supplier (fraudulent trader) receives the VAT from its client and does not turn it to the VAT Authorities but disappears.
In order to combat these frauds, the European Commission has recently adopted a directive (Directive 2010/23/EU) stating that Member States may, until June 30, 2015 and for a minimum period of two years, provide that the person liable for the payment of VAT is the taxable person to whom any of the following supplies are made:
- The transfer of allowances to emit greenhouse gases as defined by the directive establishing a scheme for greenhouse gas emission allowance trading within the Community, transferable in accordance with that directive (Directive 2003/87/EC);
- The transfer of other units that may be used by operators for compliance with the same directive.
This special scheme, aimed at reducing VAT fraud in this area, has been implemented in Luxembourg through the law of July 2, 2010 and entered into force on July 1, 2010. As from July 1, 2010, VAT is due by the recipient of the service in case of supplies of services related to the transfer of allowances, of emission reduction units or certified emission reductions as defined by the directive 2003/87/EC or instruments mutually recognized by that directive. This provision also applies to local supplies.
Please note that Luxembourg VAT return forms have been amended accordingly to include this special scheme.
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