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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 (update)

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 emissions allowances.

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 Directive).

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.

Effective date

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.

Further advice

Anyone who remains uncertain of the place of supply of a particular transaction should contact the National Advice Service.

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© Crown Copyright 2007.

A licence is need to reproduce this article and has been republished for educational / informational purposes only. Article reproduced by permission of HM Revenue & Customs under the terms of a Click-Use Licence. Tax briefs are updated regularly and may be out of date at time of reading.

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Article Published/Sorted/Amended on Scopulus 2007-08-28 23:32:25 in Tax Articles

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