EU energy industry calls for VAT exemption on trading to be extended

LONDON, Sept 4 (Reuters) - Energy industry associations called on the European Council on Tuesday to extend an exemption from the EU’s value-added tax directive for power, gas and carbon emission transactions to protect the markets from fraud.

Almost a decade ago, the EU’s Emissions Trading System suffered from value-added tax (VAT) fraud, where companies bought carbon permits in one country without paying VAT, and then sold in another adding tax to the price but pocketing that difference for themselves.

The scam resulted in billions of euros being defrauded from European coffers.

To combat the issue, the EU introduced an exemption from its VAT directive for electricity, gas and emissions trading transactions which will expire on Dec. 31 this year.

The exemption enables member states to apply the so-called Domestic Reverse Charge Mechanism to these goods and services, which ensures the seller does not have to pay VAT, shifting the liability to the buyer.

Eighteen industry associations, including Eurelectric, Eurogas and the International Emissions Trading Association, said VAT fraud remained a persistent threat to the integrity and operation of electricity, gas and carbon markets in Europe.

It has been proposed that the exemption should continue until June 2022, but industry associations said it should be extended until at least Dec. 31, 2023. (Reporting by Nina Chestney; Editing by Mark Potter)