Energy and taxation

This chapter addresses the latest policies implemented in Europe consistent with the Kyoto Protocol to reduce greenhouse gas emissions and explores their implications for tax purposes. Among these strategies, the introduction of the Emissions Trading System (ETS) can be considered a success story, as it has proved capable of striking a balance between the need for environmental protection and financial sustainability of businesses. Although the ETS mechanism is clear, taxation of ETS certificates is complicated as it possibly has impacts under direct taxes and value-added tax (VAT). The chapter argues that the certificates should be considered services under European VAT law and taxed accordingly. The production of certificates by private companies is also considered. This possibility, a reality in several states, raises issues concerning the possibility of tax proceedings originating from the sale of such certificates. The chapter argues that this scenario should be explored, and that the possibility of producing certificates (and taxing them properly) would facilitate the green transition, ultimately reducing costs and mitigating the adverse impact on businesses.