#Green Tax – Green Incentives | Part 3: Emission Certificates or Allowances

Who is liable for value added tax (VAT) on the transfer of emission certificates? 

Since this year, the so-called reverse charge mechanism has been in place for the transfer of emission certificates. 

What are emission certificates or allowances (Emissionszertifikate)?

Short: "Pollution rights". 
Long: An emission certificate within the meaning of Section 3 No. 2 BEHG (Brennstoffemissionshandelsgesetz - German Fuel Emissions Trading Act) is a certificate that entitles the holder to emit one ton of greenhouse gases in tons of carbon dioxide equivalent within a certain period of time. If and to the extent that entrepreneurs exceed a defined threshold quantity of emissions, the BEHG obliges them to purchase and surrender emission certificates.

How are emission certificates traded? 

Emission certificates are acquired by transfer from the selling company to the acquirer. The transfer requires an agreement and entry in the acquirer's account in the national emissions trading register in accordance with Section 9 Para. 2 BEHG.

Is the transfer of emission certificates subject to VAT? 

Yes, the transfer of emission certificates pursuant to Section 3 No. 2 BEHG is governed by German VAT Act and not exempt from VAT, and is therefore subject to VAT.

Who is liable for VAT? 

The buyer or recipient of the service. Since 01.01.2023, the business recipient is liable for VAT on the transfer of emission certificates (Section 13b Para. 2 No. 6 German VAT Act).

What does this mean for invoicing? 

The supplier may not show VAT, but must issue an invoice in which the (net) remuneration and the note "Tax liability of the recipient" (Section 14a Para. 5 German VAT Act) must be stated.

This applies regardless of whether or not the supplier received the payment or parts of the payment before 01.01.2023.

Special considerations for advance payments?

The following scenario: (i) emission certificate trading before 01.01.2023, (ii) advance payments before 01.01.2023, (iii) for services provided after 31.12.2022 and (iv) issuing an advance payment invoice with VAT (because the reverse charge mechanism was not implemented before 01.01.2023).

The supplier should generally correct their advance payment invoice with VAT shown in the pre-notification period in which the service is actually performed (Section 27 Para. 1 Sentence 3 German VAT Act). Otherwise, the invoice issuer may be liable under Section 14c Para. 1 German VAT Act; for details, see BMF circular dated 05.09.2023 on the recipient's liability for VAT on the transfer of emission certificates/allowances here.