Value added taxes and public procurement in energy trading

Transcription

1 Value added taxes and public procurement in energy trading Obstacles to cross border trade Mumovic Milka Energy Community Secretariat Energy Community Secretariat

2 CESEC initiative Meeting of the Central and South-Eastern European Connectivity (CESEC) High Level Group in Sofia on 29 June 2018 Conclusions [11]. Asks the European Commission and the Energy Community Secretariat to investigate bottlenecks in market reform and integration in the CESEC region related to non-matching VAT and public procurement regimes, and to propose solutions to the next High-Level Group meeting Energy Community Secretariat CESEC Energy24 Community October 2014 Secretariat 2

3 Work undertaken so far February 2017: Study on extending the Energy Community Treaty to include the rules on public procurement Link: Energy Community Secretariat CESEC Energy24 Community October 2014 Secretariat 3

4 Public procurement rules: obstacles or tools for market integration Public Procurement: In EnC most of the energy companies are state owned and subject (or should be subject) to public procurement rules. Rules are to a certain extent harmonized Their implementation is not. - Different interpretations - Different procedural rules - Market competition assessments Concentration limits customer s access to competitive offers, exempting public entities from implementing public procurement for energy purchases. Saving potential min. 20 mil EUR annually If all contracting entities currently belonging to small customers would purchase electricity in public procurement procedure, only 1 EUR/MWh lower offer would bring 20 mil. EUR annual savings. This is without counting for consequential effects of steering the interests for new entries, aggregated purchases via centralized electricity procurements, intensification of customers activity Energy Community Secretariat CESEC Energy24 Community October 2014 Secretariat 4

5 Status of implementation in CP Albania Bosnia and Herzegovin a Georgia FYR Kosovo* Moldova Montenegro Serbia Ukraine General principles (transparency, equal treatment, free competition and non-discrimination) Definition of contracting authority and contracting entity Do public procurement rules apply to contracting entities & entities operating on the basis of special or exclusive rights? Do contracting authorities apply public procurement rules to purchase electricity or gas for their own consumption The thresholds Exclusion when a contracting entity is active in the energy sector (supply and production) exposed to competition Exclusion of the service contracts awarded on the basis of an exclusive right Exclusion of contracts between contracting authorities or entities and their affiliated entities? Do public procurement rules apply to the granting of the support scheme for renewable energy Are public procurement rules applied by TSOs when procuring for providing balancing and ancillary services? Do public procurement rules apply to construction of new production facilities? Do public procurement rules apply to construction of interconnections or extension of the grid? What types of procurement procedures are available and what are the prescribed time limits? What techniques and instruments are available What are the applicable award criteria? Is it possible to reject a participant for abnormally low tenders? What are the grounds for modification of a PP agreement? What are the available remedies? Preferential treatment of domestic economic operators Promotion of environmental and other criteria Electronic self-declarations for bidders (ESPD) Purchase of electricity from power exchanges or other organised market 5

6 Does competition exist? Works best when the five market forces are kept in balance How market powers work in energy markets? The How: Remove Obstacles to the sale on equal terms and without discrimination or disadvantages Competitive offers from state owned power producers and their participation in cross border competition brings price convergence. Competition brings efficiency and contributes to security of supply in the long run. Efficiency and market prices contributes to profitability of state owned companies, including inputs to state budgets. Create appropriate and efficient mechanisms for regulation, control and transparency so as to avoid any abuse of a dominant position, in particular to the detriment of consumers, and any predatory behavior. Energy Community Secretariat Energy CESEC Community 24 October Secretariat

7 The implementation plan 1. Formal commitment of the Contracting Parties to introduce in the national legislation and implement public procurement rules relevant for the opening and cross border integration of electricity and natural gas market; 2. Establishment of an expert group / network of procurement authorities, lead by an expert from the Commission, to monitor and guide practical implementation and to ensure adequate level of consistency and harmonization in the Energy Community; 3. Implementation: monitoring and reporting of the compliance with the harmonized public procurement rules, of interpretations and instructions, of granted exclusions and dispute cases; 4. The Secretariat shall facilitate the work of the Network of Procurement Authorities, provide logistic and administrative support in accordance with the work plan. 7

8 Steps - Harmonize market design and licensing regime - mutual recognition (Art 34 of EnC Treaty) Licensing rules Customers rights Entry barriers - Remove barriers to trade - Ensure access to supplier regardless of the CP where the supplier is registered (Art 3.4 of Directive 2009/72) - Preconditions - compliance with market and balancing rules - In EnC compatibility with fiscal rules (primarily VAT) When Directives on internal market are implemented, market is considered open - Harmonized implementation of public procurement rules may help to get out of the vicious circle. Energy Community Secretariat CESEC Energy24 Community October 2014 Secretariat 8

9 Supply by non resident supplier status in EnC CP B2B Taxation rules Wholesale supply (trade) Retail supply B2C License required Domestic seat required License required Domestic seat required Albania RCM FR BiH FR FR Georgia PE PE Kosovo* RCM FR No FYR RCM PE Moldova PE PE Montenegro FR FR No No Serbia RCM FR No Ukraine PE PE RCM REVERSE CHARGE MECHANISM PE PERMANENT ESTABLISHMENT REQUIRED FR FISCAL REPRESENTATIVE NPE PERMANENT ESTABLSHMENT NOT REQUIRED Energy Community Secretariat CESEC Energy24 Community October 2014 Secretariat 9

10 VAT issue Different VAT regimes are creating obstacles for trade in energy in the EnC countries. - supply of goods - Domestic supplies, Cross border supplies - Organized market - supply of services - Access to network, Use of network - Other services Different tax obligations may lead to different playing field for market participants. Non-harmonized rules lead to double taxation or non taxation Distorting competition Hinder competition and new entries (Suppliers will not enter a market where competition have a hidden advantage Lost public revenue from tax fraud scheme (VAT lost due to tax fraud may amount to 40 mil. EUR p.a.) (Assuming the value of transaction in wholesale electricity market of minimum 10 bill. EUR, and assuming the share of VAT fraud at the same level of 0,04% total transaction as in EU MSs) Tax evasions and fraud undermine market confidence. Energy Community Secretariat CESEC Energy24 Community October 2014 Secretariat 10

11 Work performed August 2017: Study on examining the implementation of EU acquis on Value Added Tax in the Energy Community legal order Link: Energy Community Secretariat CESEC Energy24 Community October 2014 Secretariat 11

12 Where are the differences? Taxable person Place of taxable transaction Person liable to pay tax Place of Supply of services Place of Supply of goods Reverse charges 12

13 Status of harmonization with EU VAT regime VAT Directive - subject matter Application Article Albania B&H Montenegro Georgia Kosovo FYR of Moldova Serbia Ukraine TAXABLE PERSON general (Art. 9) ////// ////// GOVERNMENTAL BODIES PLACE OF SUPPLY OF GOODS PLACE OF SUPPLY OF SERVICES EXEMPTIONS ON IMPORTATION EXEMPTIONS ON EXPORTATION general (Art.13) ////// ////// ////// ////// ////// NG and electricity (Art. 38, 39) ////// ////// general, and access to network (Art. 44, 45, 59/1/h) NG and electricity (Art. 143) ////// general (Art. 146) ////// ////// ////// ////// general (Art.192a ) ////// PERSON LIABLE FOR PAYMENT OF VAT reverse charging - general cross-border reverse charging [NG and electricity] domestic reverse charging [NG and electricity, certificates] and reporting (Art.194 ) (Art.195 ) (Art.199a) ////// tax representative (Art.204) 13

14 Minimum requirements for harmonization Uniform treatment of electricity and natural gas as goods in the VAT legislation (tangible asset); The place of supply of goods is the place where the customer is located (in the case of gas through the natural gas distribution system, or of electricity). Definition of the place of supply of natural gas through the distribution system, or of electricity, to a taxable dealer (business to business [B2B] transaction), as the place where that taxable dealer has established his business, or has a fixed establishment for which the goods are supplied, or, in the absence of such a place of business or fixed establishment, the place where he has his permanent address or usually resides; Definition that the supply of electricity at the final stage from traders and distributors to the final consumers should be taxed at the place where the customer actually uses and consumes the goods (business to customer [B2C] transaction); Definition of place of supply of services to taxable person as a place where taxable person has established his business, or has a fixed establishment for which the services are supplied, or, in the absence of such a place of business or fixed establishment, the place where he has his permanent address or usually resides The place of supply of services to a non-taxable person shall be the place where the supplier has established his business. 14

15 Minimum requirements for harmonization Recognizing the subject of a taxable dealer in the VAT Law provisions on supply of gas and electricity; VAT exemption on exportation of electricity (natural gas) through a system or any network connected to such a system (or fed in from a vessel transporting gas into a natural gas system or from any upstream pipeline network) with the right to VAT deduction. VAT exemption on the importation of electricity (natural gas) through a system or any network connected to such a system (or fed in from a vessel transporting gas into a natural gas system or any upstream pipeline network); VAT shall be refunded to taxable persons who are not established within the territory of the CP. The VAT law shall define requirements for VAT refund, the institute of the Fiscal Representative or direct Tax Registration. Energy Community Secretariat CESEC Energy24 Community October 2014 Secretariat 15

16 Scenarios for VAT chargeability on transactions between persons from Bulgaria and FYR Case 1: Double taxation Company A from FYR of sells a service to Company B from Bulgaria (B2B) Supplier Company (A) from FYR of - Non-taxation Customer Company (B) from Bulgaria Supply of services - B2B Place of supply (FYR of VAT Law): Place of supply (Bulgarian VAT Act) VAT paid by (FYR Law): FYR of Bulgaria Supplier of VAT VAT paid by (Bulgarian VAT Act): Customer VAT will be paid in both countries (MK) (BG) VAT will be paid in both countries - it is negative for companies, distorting competition 16

17 Scenarios for VAT chargeability on transactions between persons from Bulgaria and FYR Case 2: No taxation Company A from Bulgaria sells a service to Company B from FYR of (B2B) Supplier Company (A) Bulgaria Customer Company (B) from FYR of Supply of services - B2B Place of supply (Bulgarian VAT Act): Place of supply (FYR of VAT Law): VAT paid by FYR of Bulgaria Customer (Bulgarian VAT Act): VAT paid by (FYR Law): Supplier of VAT VAT will not be paid in any country (MK) (BG) VAT will not be paid in any country distorting competition, is negative for budget in both countries, higher risks of task fraud. 17

18 Scenarios for VAT chargeability on transactions between persons from Bulgaria and FYR Case 3: Double taxation Company A from FYR of sells a service (provision of access to network) to customer B from Bulgaria (B2C) Supplier Company (A) - Non-taxation FYR of Customer (non-taxable legal person) Bulgaria Supply of services -B2C (provision of access) Place of supply (FYR of VAT Law): Place of supply (Bulgarian VAT Act) VAT paid by (FYR Law): FYR of Bulgaria Supplier (MK) of VAT VAT paid by (Bulgarian VAT Act): Supplier -tax representative VAT will be paid in both countries Or Customer -non-taxable legal person VAT will be paid in both countries - it is negative for companies, distorting competition 18

19 Scenarios for VAT chargeability on transactions between persons from Bulgaria and FYR Case 4: Non taxation Company A from Bulgaria sells a service (provision of access to network) to customer B from FYR of (B2C) Supplier Company (A) from Bulgaria Customer (B) from FYR of Supply services - B2C of (provision of access) Place of supply (Bulgarian VAT Act): Place of supply (FYR of VAT Law): VAT paid by FYR of Bulgaria Customer (Bulgarian VAT Act): (MK) VAT paid by (FYR Law): Supplier (BG) of VAT VAT will not be paid in any countries VAT will not be paid in both countries - distorting competition, is negative for budget in both countries, higher risks of task fraud 19

20 Scenarios for VAT chargeability on transactions between persons from Bulgaria and FYR Case 5: Different VAT treatment of players in the same market Example Company A from FYR of sells electricity to Company B from Bulgaria Supplier Company (A) FYR of Customer Company (B) Bulgaria Supply of electricity Place of supply (FYR of VAT Law): FYR of -export Place of supply (Bulgarian VAT Act) Bulgaria - Reverse charge VAT paid by (FYR of VAT Law) Supplier Export - exempt VAT paid by (Bulgarian VAT Act) Customer - import exempt - apply RC VAT will be paid by Bulgarian customer Supplier from FYR of must prove export with custom declaration. Bulgarian customer will not pay on import, he will apply RC and he will have right of deduction but not have additional cost 20

21 Scenarios for VAT chargeability on transactions between persons from Bulgaria and FYR Example Company A from Bulgaria sells electricity to Company B from FYR of Supplier Company (A) Bulgaria Customer Company (B) FYR of Supply of electricity Place of supply (Bulgarian VAT Act): Place of supply (FYR of VAT Law): VAT paid by FYR of FYR of Suppler (Bulgarian VAT Act) - export exempt VAT paid by (FYR of VAT Law): Customer - VAT on import VAT will be paid in FYR of on import Customer from FYR of must pay VAT on import, but he will have right of deduction. Customer from FYR of will have additional costs to finance the transaction (VAT until deduction) for purchases from Bulgaria. This is distorting competition because of additional costs borne by this customer. 21

22 Implementation plan 1. Preparation of amendments of VAT legislation and its adoption 2. Implementation, harmonization and coordination 3. Monitoring and consulting (VAT expert group) Coordination of the efforts among Contacting parties is the key priority in order to avoid doubletaxation or non-taxation in the Contacting parties. In the coordination activities the Commission support is of key importance. Transactions for electricity between entities from different Contacting Parties and between Contracting Parties and EU Member States that have predominantly different taxation system can lead to negative effects such as distortion of competition and negative implications on the Contracting Party/EU Member States budgets resulting from tax evasion or tax fraud. 22

23 Questions 23