VAT Treatment of Greenhouse Gas Emission Trading Allowances

A feature in Tax Briefing Issue 58 of December 2004, dealt with the VAT treatment of the scheme for Greenhouse Gas Emission Allowance Trading. Under the scheme, the Environmental Protection Agency (EPA) issues permits to organisations engaged in certain activities that give rise to the emission of Greenhouse Gases. Organisations not meeting their targets for reduction in Greenhouse Gas emissions are obliged to purchase allowances from other organisations that have met their targets.

The allowances are Fourth Schedule services for VAT purposes and, while the initial issue of the permit by the EPA is regarded as being outside the scope of VAT, the transfer of the allowances between organisations is treated as:–

• the supply of a service taxable at 21%, if supplied within the State, and
• taxable where received, on a reverse charge basis, if supplied cross border.

Since the Tax Briefing feature was published it has emerged that other types of allowances generated outside the EU are available to trade in a similar fashion to those mentioned above. Particular types of allowances that have been the subject of recent enquiries to Revenue are CERs (Certified Emission Reductions), but there are others in existence such as Renewable Obligation Certificates (ROCs), Emission Reduction Units (ERUs), Levy Exemption Certificates (LECs), Assigned Amount Units (AMUs) and Renewable Energy Certificates (RECs).

Revenue can confirm that these services are Fourth Schedule services and the VAT treatment applicable to the allowances covered in Tax Briefing Issue 58 applies equally to these allowances.