Appendix
1 S.I. 2009/2093: memorandum from
HM Revenue & Customs
Value Added Tax (Emissions Allowances) Order 2009
(S.I. 2009/2093)
1. In its letter to HM Treasury of 28 October
2009, the Select Committee has requested a memorandum to be submitted
on the following point:-
Given the possibility that the
retroactive derogation referred to in paragraph 3.4 of the Explanatory
Memorandum may not come to be granted, what (if any) are the Department's
grounds for treating the Order as compatible with European Community
law in any event?
2. The Value Added Tax (Emissions Allowances)
Order 2009 introduced a new zero-rate for transactions in emissions
allowances in respect of greenhouse gases within the United Kingdom.
3. The purpose of the measure was to combat VAT
fraud identified with such transactions.
4. The United Kingdom's application for retroactive
derogation remains with the Commission for consideration.
5. Three other member states who are already
affected by emissions trading MTIC fraud have introduced measures
to combat it either by the imposition of a zero-rate or a reverse
charge and one of them has sought a derogation.
6. The Commission is seized of the importance
of the problem and has issued a proposal, on 29 September 2009,
for a Community-wide reverse charge on emissions trading which
the Swedish Presidency is progressing swiftly.
7. In the context of fraud prevention, Article
273 of the Principal VAT Directive (2006/112/) permits member
states to impose obligations which they deem to be necessary to
ensure the correct collection of VAT and to prevent evasion.
There is no requirement to seek a derogation for measures introduced
under the Article.
8. HMT and HMRC consider that the parameters
of the discretion given to member states under this Article are
too narrow to encompass a measure that is technically a tax relieving
measure. Accordingly the Government has had to seek a specific
derogation from the Commission in respect of the provisions of
this Order.
9. HMT and HMRC have considered the implications
of the measure both in regard to the effect on taxpayers' rights
and expectations and also in terms of the effect on the Exchequer.
It was concluded that since the measure relieves taxpayers from
tax which would in any event, in almost all cases, have been the
subject of a claim to credit by tax registered end users, the
measure's effect on both taxpayers and the Exchequer will be neutral.
The measure prejudices the activities of MTIC fraudsters who
would otherwise be able to divert significant amounts of VAT from
the emissions market by manipulation of standard rated transactions.
HM Revenue and Customs
3rd of November 2009
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