European Commission / Taxation and Customs Union June 2009 StockholmInternational Tax Conference1 Tax Aspects of Tradable Emission permits: Commission's perspective Rolf DIEMER Head of Unit DG Taxation and Customs Union D1: Value Added Tax and other turnover taxes European Commission

European Commission / Taxation and Customs Union June 2009 StockholmInternational Tax Conference2 EU ETS: Directive 2003/87/EC of EP and of the Council of 13 October 2003, amended on 6 April 2009 Allowances allocated by Member States free of charge (Article 10) - at least 95% of all allowances ( ) - at least 90% of all allowances ( ) Auctioning: the principle method of allowance allocation as of 2013 => important implications for VAT purposes

European Commission / Taxation and Customs Union June 2009 StockholmInternational Tax Conference3 VAT Aspects of CO 2 Emission Allowances  A harmonised approach in the EU?  The VAT Committee - Article 398 of the VAT Directive (2006/112/EC) ‘The Committee shall examine questions raised by its chairman, on his own initiative or at the request of the representative of a Member State, which concern the application of Community provisions on VAT.’ - VAT treatment of CO2 emission allowances: examined in 72 nd, 74 th and 75 th meetings in 2004

European Commission / Taxation and Customs Union June 2009 StockholmInternational Tax Conference4 VAT Aspects of CO 2 Emission Allowances (2) Two Main issues Taxation of allowances issued for payment by the Member States Taxation of transfers of allowances between taxable persons

European Commission / Taxation and Customs Union June 2009 StockholmInternational Tax Conference5 VAT Aspects of CO 2 Emission Allowances (3) Taxation of allowances issued for payment by the Member States The Commission’s opinion: - Taxable transaction: - YES; Article 13(1) - Increasing volume of allowances to be auctioned =>ever increasing risk of distortions if exempted - Supply of services (intangible assets) - Place of supply: the Member States of the customer (Article 56(1)(a) of the VAT Directive) - No exemption is applicable: exemptions in Articles to be interpreted restrictively. No existing exemption covers transfers of allowances

European Commission / Taxation and Customs Union June 2009 StockholmInternational Tax Conference6 VAT Aspects of CO 2 Emission Allowances (4) Taxation of transfers of allowances between taxable persons Member States unanimously agreed on the following guideline: ‘ The delegations agreed unanimously that the transfer of greenhouse gas emission allowances as described in Article 12 of Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003, when made for consideration by a taxable person is a taxable supply of services falling within the scope of Article56(1)(a) of Directive 2006/112/EC (Article 9(2)(e) of former Directive 77/388/EEC). None of the exemptions provided for in Articles (Article 13 of former Directive 77/388/EEC) can be applied to these transfers of allowances.’

European Commission / Taxation and Customs Union June 2009 StockholmInternational Tax Conference7 VAT Aspects of CO 2 Emission Allowances (5) Transfer of allowances by individuals Are these transactions in the scope of VAT ? Jurisprudence of the Court of Justice on securities (notably EDM-case C-77/01): In principle the mere acquisition and holding of shares is not to be regarded as an economic activity. Equally, the mere acquisition and mere sale of other negotiable securities cannot amount to exploitation of an asset intended to produce revenue on a continuing basis, since the only consideration for those transactions consists of a possible profit on the sale of those securities. On the other hand, transactions relating to securities can constitute an economic activity entering in the scope of VAT when they consist in drawing revenue on a continuing basis from activities which go beyond the simple acquisition and sale of securities, such as transactions carried out in the course of a business trading in securities. Emission allowances are not securities, but still: the same principles must be applied to transactions relating to these allowances. Therefore, no general answer is possible, it has to be examined on a case by case base.

European Commission / Taxation and Customs Union June 2009 StockholmInternational Tax Conference8 EU Energy Taxation Directive and EU ETS CO 2 tax & EU ETS: cost-efficient instruments to reduced CO 2 emissions However: - combined application could lead to efficiency losses if both instruments overlap - currently partial overlap in scope between EU ETS and the Energy Taxation Directive Possible solution: revision of the Energy Taxation Directive –to single out the CO2 component of energy taxes –levy them only on installations not covered by the EU ETS

European Commission / Taxation and Customs Union June 2009 StockholmInternational Tax Conference9 Thank you for your attention Any questions? European Commission VAT and other turnover taxes - Taxation and Customs Union DG