New VAT rules for carbon credits

Section 133, Finance Act 2010 was commenced by the Minister for Finance on 8 April 2010. Section 133 introduces a reverse charge mechanism for trading in greenhouse gas emission allowances (carbon credits) from the commencement date.

Under the reverse charge mechanism the supplier is not liable for the VAT on the supply. The supplier issues a VAT invoice (showing nil VAT) which states that the recipient is liable to account for the VAT.

The recipient must include a charge for the VAT on the supply in its own VAT return (under VAT on sales). Where the recipient is entitled to reclaim VAT on purchases it can make a simultaneous deduction under VAT on purchases.

The reverse charge mechanism was already in place for intra-EU supplies. It has now been extended to domestic supplies. The move is aimed at combating VAT fraud which has occurred in some EU states.

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