Ruling of the Ministry of Finance regarding VAT regime of the Transfer/Trade with Guarantees of Origin
Author: Attorney-at-Law Vojinović B. Milan, Law Firm “VUK Tax Attorneys”
Date: 10th March 2024
On 29th December 2023, our Law Firm published the newsletter regarding trade with guarantees of origin of electrical energy (hereinafter: the “Guarantees of origin”), as this is business activity which developed significantly after the Serbian Law on Use of Renewable Energy Sources entered into force on 26th April 2021. In said newsletter, we elaborated, amongst other, question related to VAT regime of the trade/exchange with Guarantees of origin, considering respective doubts which appeared in practice in that area.
Namely, since legal nature of the Guarantees of origin is not specifically defined by the tax regulations, including Serbian Law on Value Added Tax (hereinafter: the "VAT Law"), in our opinion, trade/exchange with Guarantees of origin cannot be clearly classified under sale of goods or provision of services, in the context of this Law. Therefore, we concluded in the published newsletter dated 29th December 2023, that since Guarantees of origin are intangible accompanying products derived from the production of electricity as a good, trade/exchange of Guarantees of origin cannot be categorized under general regime provided for supply of goods and services in the VAT Law. Also, since it is possible to trade with Guarantees of origin on the exchanges, and that these are electronic documents, which makes them similar to financial instruments such as stocks or bonds, we took the standpoint that Guarantees of origin have a similar status and function like securities, so when trading with Guarantees of origin, the VAT regime provided for trade with securities could be applied. Consequently, when trading with Guarantees of origin, provisions of the VAT Law which define VAT exemption without the right to deduct input VAT, would be applicable.
On the other hand, on 9th February 2024, Ministry of Finance of the Republic of Serbia (hereinafter: the “Ministry of Finance”) issued the Ruling no. 000312318-2024-10520-004-000-011-005 regarding VAT regime of the transfer/trade with Guarantees of origin, and took the standpoint that transfer of Guarantees of origin which is performed by VAT payer, independently from the electrical energy from which it is derived, is deemed constitute supply of services which is subject to VAT at the standard 20% tax rate. Besides quoting general provisions of the VAT Law which define what is regarded as supply of goods and what as supply of services (Articles 4. and 5. of the VAT Law), and quoting provisions of the Serbian Law on Use of Renewable Energy Sources which define concept of the Guarantee of origin, as well as the possibility to transfer the Guarantees of origin, the Ministry of Finance did not provide detailed and substantial justification for its standpoint that the transfer/trade with Guarantees of origin performed by VAT payer constitutes supply of services, and consequently that the general regime provided for the supply of services in the VAT Law is applicable. Moreover, the Ministry of Finance, did not conduct a detailed analysis of legal nature of the Guarantees of origin in its ruling, nor it pointed out the specifics of this accompanying product which can be traded on the exchange.
Provision of the Article 11 paragraph 3 of the Serbian Law on Tax Procedure and Tax Administration defines that the rulings of the Ministry of Finance are binding for the Tax Administration. Therefore, it is quite certain that in its practice, the Serbian Tax Administration will apply VAT regulations on transfer/trade with Guarantees of origin in accordance with the subject ruling of the Ministry of Finance.
Principled and reasoned standpoint of our Law Firm however remains the same, that when trading with Guarantees of origin of electrical energy, it would be correct to apply the VAT regime provided for trade with securities, i.e. provisions of the VAT Law which define VAT exemption without the right to deduct input VAT. Nevertheless, we remind all market participants that the last say in the application of tax regulations rests with the competent public authorities, and therefore they should certainly take into account the current ruling of the Ministry of Finance described in this newsletter.