The European Union has made significant progress in the past decades with its attempt to harmonise and liberalise its internal energy market.
The EU has focused on addressing market access, supporting interconnection, development of trans-European networks for transporting electricity and gas, while ensuring consumer protection as well.
But trading across several EU and non-EU countries means that traders must comply with registration, reporting and payment obligations for VAT purposes in several countries. This may be cumbersome for some traders as it usually means taking important resources away from their core business.
Rather than leaving you having to establish and manage relationships in many countries with tax authorities, or deal with high and unpredictable costs, Accordance’s single point of contact brings control and visibility to all VAT services you require, whether it’s VAT registration services , VAT reporting services , or VAT refund services , allowing you to focus on your day to day business.
Among the first steps which traders who buy and sell energy on domestic markets need to take is applying for registration with relevant energy agencies from the countries they trade in. But trading as a non-resident company may imply a VAT registration being needed as well, depending on the exact VAT provisions in force and the type of transactions performed.
For example, as a non-established business the selling of energy to local customers may trigger VAT registration requirements in some jurisdictions. On the other hand, some EU Member States apply the extended reverse charge simplification in relation to their domestic transactions which may exempt you from the obligation to register for VAT purposes. The application of these provisions is not uniform throughout Europe so each jurisdiction should be analysed separately.
Depending on the transactions you perform as a trader we can advise if, when and where you need to register for VAT throughout EU and non-EU countries and take care of the registration process so you can concentrate on your day to day business.
Reporting across various VAT jurisdictions
After the liberalisation of the energy market several high-profile “missing-trader” fraud cases have been reported. These involve businesses collecting VAT from customers which they do not pay to the authorities as well as recovering VAT on costs fraudulently.
As a consequence Member States have received permission to apply special measures should they deem them necessary. One of these is the use of a general reverse charge mechanism (GRCM), albeit stringent conditions need to be met for it to apply. Furthermore, a quick reaction mechanism was also established, enabling the European Commission to grant a Member States special derogations for a maximum period of one year in case of major fraud attacks. The consequence of all this is that the VAT treatment applied and how VAT is reported can now vary to large degrees between EU Member States. This creates greater uncertainty for businesses.
Considering the tax authorities’ determination to combat VAT fraud, correct VAT reporting is crucial as non-compliance with VAT regulations may result in the business becoming subject to late payment or reporting charges or even accusations of fraud. Furthermore, companies being deemed high-risk taxable person face tougher audits and are required to provide more information during tax audits.
This is particularly challenging as the energy market has specific VAT rules. For example, even though electricity, gas, heat or cooling energy are deemed to be tangible property and hence supplies of goods for VAT purposes, they often are subject to specific rules different from those applying to other supplies of goods. For example, use of the reverse charge mechanism to account for VAT even on domestic supplies is widespread.
Domestic sales of gas or electricity to businesses may also be subject to the application of the reverse charge mechanism. But the application of the domestic reverse charge may differ in terms of scope and conditions in each EU VAT jurisdiction.
Special care should be given as well in relation to charges invoiced by energy regulators for participating in mechanism for the settlement of imbalances between physical and contractual positions. Depending on the exact elements used by the settlement mechanisms (e.g. non-delivery charges) some charges may be outside the scope of VAT, while others may be deemed as taxable.
We have extensive expertise in cross-border transactions and working across various VAT jurisdictions allows us to have a broad view of your business and provide you with tailored advice on VAT in both EU and non-EU jurisdictions, covering not just one side of a transaction but your entire supply chain.
VAT audits and VAT refund claims
Because of the rules governing supplies of electricity, gas, heat or cooling energy, non-resident traders are not usually in a credit position (i.e. they have to make payments of VAT rather than receive them when submitting VAT returns). Therefore, VAT refund claims are carefully scrutinized by the authorities in order to limit any potential VAT frauds.
Audits may be performed by the authorities irrespective of whether a VAT refund claim was submitted. Crosschecks are becoming a common occurrence as the authorities try to confirm the validity of information received from traders by verifying the information from their suppliers or clients.
Accordance has long standing experience in VAT refund claims in both EU and non-EU countries, as well as extensive experience in working with tax authorities during audits.