HM Revenue and Customs Brief 52/07
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Issued 22 August 2007
VAT – place of supply of trading allowances in greenhouse gas emissions
This Brief updates HMRC’s VAT policy on determining the place of supply of
trading emissions allowances, announced in Business Brief 28/04, to include the
treatment of trading in other greenhouse gas emission instruments that have
emerged since that time.
Business Brief 28/04 stated that the place of supply of emissions allowances
under the EU Emissions Trading Scheme (EU ETS), when traded cross–border, is the
place where the customer belongs. However, we were, at that time, unclear about
the nature and purpose of other greenhouse gas emission instruments that
existed, and since then other greenhouse gas emissions instruments have emerged,
with differing objectives.
Having now clarified our understanding of the nature and purpose of these
various greenhouse gas emissions instruments under the different Schemes that
are currently being, or will be in future, traded cross-border, we can confirm
that they are subject to the same VAT treatment as emissions allowances.
This Brief covers instruments representing emission reductions, carbon
credits, and certificates that identify that the production of energy has been
generated from renewable sources. These include, but are not limited to,
Certified Emission Reductions (CERs), Renewal Obligation Certificates (ROCs),
Emission Reduction Units (ERUs), Levy Exemption Certificates (LECs), Assigned
Amount Units (AAUs), EU Allowances (EUAs) and Renewable Energy Certificates (RECs).
More detailed guidance about the supply position of Verified Emission
Reductions (VERs) will be issued in the near future. However, when supplies of
VERs are found to be taking place, their place of supply will be the same as for
Place of supply rules
The place of supply of cross border trading in greenhouse gas emissions
instruments is the place where the recipient belongs (falling within Schedule 5
of the VAT Act 1994 and Article 56 of the VAT Directive). Transactions that take
place between parties established in the UK will continue to be taxed where the
supplier belongs, under section 7(10) of the Act (Article 43 of the VAT
This will not affect certificates or instruments that are sold with goods or
services. In these circumstances the certificates will usually be viewed as
incidental or ancillary to the main supply. An example of this is where a
guarantee of origin is issued to customers purchasing electricity that certifies
the electricity was generated from renewable sources.
This policy will be implemented from the date of this Brief for those
transactions that have not yet taken place or where no decision has been taken
on the place of supply. However, we are aware that for some cross-border
transactions that have already taken place, where we now accept that the place
of supply is the customer’s country, rulings were given that they were subject
to UK VAT. In the circumstances the parties involved in such transactions can
choose whether they want to revisit the arrangements and apply the rules in this
Brief, or maintain the position as originally applied.
Anyone who remains uncertain of the place of supply of a particular
transaction should contact the National Advice Service.
About the Author
© Crown Copyright 2007.
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Article Published/Sorted/Amended on Scopulus 2007-08-28 23:32:25 in Tax Articles