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Issues related to emissions permits/credits

Issues related to emissions permits/credits
20 Dec 2012
On 31 May 2011, the OECD released a public discussion draft entitled "Tax Treaty Issues Related to the Trading of Emissions Permits".

The few comments received on the discussion draft included the suggestion that the scope of the discussion draft be expanded to cover tax treaty issues arising from the trading of CERs (Certified Emission Reduction credits) and ERUs (Emission Reduction Units) as well as tax treaty issues arising from the issuance, as opposed to the trading, of emission permits, CERs and ERUs.

Further to the publication of the OECD's invitation for public comment on the revised discussion draft on tax treaty issues related to emissions permits/credits - addressing the application of the OECD Model Tax Convention to the cross-border trading of emission permits - Taxand is honoured to provide combined feedback from around the world.

Access Taxand's full response to the OECD's invitation for public comments on a revised discussion draft on tax treaty issues related to emissions permits/credits 

Taxand's Take

Taxand supports the commentary draft from OECD, but, in order to reduce the risks of potential double taxation, we would appreciate more clarity on dual classification issues. In particular, further clarification could be provided with regard to the following points:

  • Characterisation of income derived from the alienation of emission rights for tax treaty purposes as business profits or capital gains.
  • Explicit and full exclusion of the characterisation of emission rights as immovable property.
  • Characterisation as income from immovable property (Article 6) due to links with agricultural or forestry activities should only apply to the entity carrying out those activities, not to subsequent acquirers or traders of those rights. A similar clarification could also be included in the commentary with regard to Article 8 (Shipping, Inland Waterways Transport and Air Transport).
  • Scope of application of Article 21.

Taxand's Take Author

Jimmie van der Zwaan
Taxand global energy tax service line leader