9th JUNE 2015
GREEN TUESDAY • Data Management • Legislation • Compliance
A Unique Perspective
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A Unique Perspective | Green Tuesday | 09.06.2015
EU: European Court rules against low VAT for energy-saving equipment On 4 June 2015, European Union judges told the United Kingdom its lower rate of value-added tax (VAT) for home energy efficiency renovation is illegal putting the government’s “tax lock commitment” into doubt. The Treasury is expected to be forced to increase the VAT rate on insulation, solar panels and other energy saving equipment from 5 per cent to 20 per cent, in spite of plans in last week’s Queen’s Speech to legislate against VAT increases.
The UK’s €700 million ‘Green Deal’ programme is under threat Britain enjoys a reduced VAT rate of 5 per cent for the supply and installation of “energy-saving materials” for housing, but now faces mounting weekly fines unless it changes the rules. The European Court of Justice (ECJ), which rules on points of EU law, in Luxembourg agreed with the European Commission (EC) and ruled that the lower price broke the EU VAT Directive. The UK’s €700 million ‘Green Deal’ programme is intended to help Britain meet its climate targets by allowing cost-effective renovations and refurbishments of energy-inefficient homes, which can be recouped through energy bill payments. Renovating buildings to boost energy efficiency is one of the best ways to reduce consumption, increase energy security, and fight climate change. Under the EU VAT directive, member states may vary VAT rates on certain products but there are tight restrictions on these derogations. The EC believes that reduced VAT rates are less effective at promoting energy efficiency than direct subsidies. According to the EC, which brought infringement proceedings against the UK, the reduced rate could only apply to transactions related to social housing. The UK argued that a policy of housing improvement would have social effects. But the judges decided that because the rate applied to all residential property and all residents, it was not “essentially social.”
The Treasury is expected to be forced to increase the VAT rate on insulation, solar panels and other energy saving equipment
Renovating buildings to boost energy efficiency is one of the best ways to reduce consumption, increase energy security, and fight climate change
The UK argued that a policy of housing improvement would have social effects
Even if it was essentially social, EC lawyers argued, the reduced rate couldn’t be applied if material supplied cost a significant part of the value of the service provided. That is the case with building renovation materials, they said.
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A Unique Perspective | Green Tuesday | 09.06.2015
EC taxation spokeswoman Vanessa Mock said the UK must take immediate measures to comply with the judgment and that the EC would follow the matter closely. However, the objective of supporting energy saving in itself is supported by the EC and there are other ways of promoting the installation of energy-saving materials while remaining in line with EU law.
The objective of supporting energy saving in itself is supported by the EC
Next steps: EC intends to communicate its vision for a definitive VAT regime next year The EC intends to communicate its vision for a definitive VAT regime next year. Any reform in this field will need member states unanimous support at the Council.
UK: UK renewable energy industry warns of legal action over subsidies The UK renewable energy industry has warned the government’s new climate secretary that she will face a legal challenge if she oversees the “willful destruction” of the industry by retrospectively curtailing subsidies. Later this week, the Department of Energy and Climate Change (DECC) will announce that the existing subsidy scheme for onshore wind power will be closed a year earlier than it was due to, according to a source close to the process. Such a move would be a major blow to the industry and go further than the Conservative party had pledged in its manifesto. It had said that it would “end any new public subsidy” in a bid to “halt the spread of onshore windfarms”. If the Renewable Obligation (RO) subsidy scheme closes in April 2016 rather than April 2017, as is now expected, onshore windfarms will have to bid for public subsidy under a new subsidy regime known as Contracts for Difference (CfD). But it is not yet clear if they will even be eligible for the CfD scheme, and Bloomberg Energy Finance has estimated that if onshore wind was not eligible then less than half the capacity of projects in advanced stages of planning would get subsidies.
The UK renewable energy industry has warned the government’s new climate secretary that she will face a legal challenge if she oversees retrospectively curtailing subsidies
Onshore windfarms will have to bid for public subsidy under a new subsidy regime known as Contracts for Difference (CfD)
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