From 8 April 2010, domestic supplies of green house gas emission allowances or carbon credits, which are tradable under the EU Emissions Trading Scheme (EU ETS), will be subject to VAT on the reverse charge basis. Prior to 8 April, the reverse charge basis only applied to cross-border supplies. Revenue has published Tax Briefing 04 which sets out the impact of this new legislation for suppliers and purchasers.

Essentially, the application of the VAT reverse charge basis to domestic supplies will mean that the Irish supplier will no longer be liable for the VAT in respect of supplies made to customers in the State. Instead, the Irish purchaser will be liable for the VAT (at the standard rate) and will be obliged to account for the VAT in their VAT return under the reverse charge rules. The availability of a VAT input credit for the purchaser will follow the normal rules that apply to VAT deductibility.

This change in the VAT treatment implements EU Council Directive 2010/23/EU of 16 March 2010. This Directive amends Directive 2006/112/EC on the common system of value-added tax (the “VAT Directive”) as regards an optional and temporary application of the reverse charge mechanism in relation to supplies of certain services susceptible to fraud.

This new VAT provision was provided for under section 133 of Finance Act 2010. It is brought into effect by a commencement order signed by the Minister for Finance on 8 April 2010.

Full details are contained in Tax Briefing 4 which is available from the Revenue website at www.revenue.ie.