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Energy Associations Call For EU Anti-VAT Fraud Action

by Ulrika Lomas, Tax-News.com, Brussels

11 December 2014


A group of ten European gas and electricity associations has called for the European Commission to compel EU member states to introduce a value-added tax (VAT) reverse charge on wholesale supplies of gas and electricity to stamp out VAT fraud.

In a joint statement, the associations said: "Following the large-scale VAT fraud discovered in the carbon dioxide emissions market in 2009, criminal networks are now targeting other tradable goods such as gas and electricity." The associations have therefore called for legislative measures to stem criminal activity in the sector.

They noted that, in June 2013, the European Commission adopted an ambitious anti-VAT fraud package, which allowed member states to adopt a temporary reverse charge on certain supplies in cases of sudden and massive VAT fraud – the so-called Quick Reaction Mechanism. However, just six member states have opted to use this mechanism to introduce a reverse charge on electricity and gas transactions – Austria, France, Germany, the Netherlands, Romania, and the United Kingdom.

As a general rule, the EU VAT Directive requires the person who makes supplies of goods or services to account for and pay the VAT on those supplies. However, in certain circumstances, the VAT may be required to be accounted for and paid by the recipient of those supplies, under a "reverse charge."

Article 199a of the EU VAT Directive permits member states to apply a temporary reverse charge under the framework of the Quick Reaction Mechanism for a minimum period of two years and until December 31, 2018, at the latest. The UK has recently legislated to apply such a reverse charge to supplies of gas and electricity to a taxable dealer. Its reverse charge has been in place since July 1, 2014.

In practice, the change means the customer receiving wholesale supplies of gas or electricity must account for the VAT due on these supplies on their VAT return, rather than the supplier. The customer can deduct the VAT due on the supplies as input tax, meaning no net tax is payable to the tax authority, subject to the normal rules for reclaiming VAT. Importantly, the change removes the scope for fraudsters to steal the VAT due to be remitted to the tax authority, as VAT is no longer passed up the supply chain.

The associations jointly stated: "As a group of ten European gas and electricity associations, comprising regulators, exchanges, brokers, clearing houses, infrastructure operators, energy trading firms, utilities, and guarantee of origin issuing bodies, we call upon the new European Commission together with the remaining 22 member states to take proactive measures in order to quickly adopt the anti-VAT fraud package at national level. This relates to the reverse charge mechanism (RCM) for gas and electricity transactions, [and] also to emissions trading, given that a few member states still have not implemented these measures for either type of transaction."

The Association warned EU member states "remain unprotected, while law enforcement agencies have repeatedly reported signs of a major penetration of the gas and electricity markets by VAT fraudsters. Moreover, due to the specific VAT treatment of gas and electricity transactions, the wholesale markets of the six member states applying the RCM can still be misused to perform illicit trading in order to steal VAT from unprotected third countries. Until all 28 member states of the European Union transpose and apply the RCM, the integrity of the European energy wholesale markets remains significantly threatened."

"In addition, it is important that Guarantees of Origin (GOs) are clearly recognized as falling under the definition of 'electricity certificates' and are included in the RCM for electricity transactions, given that they are very similar to emission certificates and also threatened by VAT fraud."

TAGS: compliance | VAT special schemes | tax | European Commission | value added tax (VAT) | Netherlands | energy | VAT legislation | VAT cross-border transactions | law | Romania | United Kingdom | enforcement | legislation | Austria | France | Germany | European Union (EU) | VAT compliance matters | Europe

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