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The tenth issue discusses the amendment to the Excise Duty and Tax Warehouses Act (EDTWA) concerning the definition of “energy product used for heating purposes” and the excise duty effects that this change may induce.
Issue 92 of the State Gazette dated 27 November 2015 promulgates an Act to Amend the Excise Duty and Tax Warehouses Act (AAEDTWA) which was adopted by the National Assembly at second hearing. The Act provides for a number of amendments which, inter alia, include a change in the definition of “energy product used for heating purposes”.
According to the amended definition in the AAEDTWA, an “energy product used for heating purposes” is a product which participates in a process related to release of heat which is used directly or indirectly through a transmission medium. The energy product used for heating purposes includes all cases where the energy products are being burnt and the heat thus produced is being used with the exception of:
The new definition will enter into force as of 1 January 2016.
Analysis of the amendment
The analysis of the new definition contained in the AAEDTWA and its comparison to the definition which is currently in force leads to the conclusion that the amendment is not simply editorial but aims to set out a wider interpretation of the notion “energy product used for heating purposes”. In this regard, the new definition may extend to energy products which so far have not been classified by the competent authorities as used “for heating purposes”.
Such a conclusion could also be drawn from the arguments presented by the Ministry of Finance to the draft of the AAEDTWA. According to these arguments, the proposed change is in line with the practice of the Court of Justice of the European Union (CJEU or the Court). An example of a CJEU decision where the notion “energy product used for heating purposes” is interpreted in a wider manner in comparison with the understanding based on the current definition in the EDTWA is the Court’s decision in Case C-240/01, Commission v Germany. In paragraph 56 of this decision, the CJEU states that “used as fuel for heating purposes” as defined in Article 2, para 2 of Directive 92/81/EEC, includes all cases where mineral oils are burnt and the thermal energy thus produced is used for heating, whatever the ultimate purpose of that heating may be, including that of transformation or destruction of the substance absorbing the thermal energy during a chemical or industrial process. The Court points out that in all these case the energy products are used up and must therefore be subject to excise duty.
It should be noted that the initial draft of the AAEDTWA explicitly referred to examples whereby the energy product is considered a heating fuel (e.g. in hothouses, drying rooms, scrap facilities, chemical plants and others, except for dual use energy products), which indicates the intention of the legislator for a wider application of the notion.
Practical aspects of the amendment
The change in the definition of “energy product used for heating purposes” may have a significant impact on taxable persons that:
Following the entry into force of the new definition (as of 1 January 2016), the certificates for EUEED issued to such persons might be considered to contradict the new EDTWA provisions. In other words, the use of energy products related to the generation of thermal energy could be considered “heating” under the provisions of the AAEDTWA and thus be subject to excise duty.
In addition, adverse consequences may also occur for taxable persons having certificates for EUEED for dual use energy products (certificates issued pursuant to Article 24, para 2, item 1 of the EDTWA).
Grounds for the above mentioned risks are the arguments to the draft of the AAEDTWA. According to these arguments, the change in the definition “is also triggered by the ambiguous interpretation of the notion “energy product used for heating purposes” upon issuing certificates for EUEED, i.e. the ambiguous interpretation of the notion can lead to the issuance of certificates for EUEED to persons or entities that use the energy products as heating fuel”. After the entry into force of the AAEDTWA, this ambiguous practice should be unified and the issued certificates for EUEED should be scrutinized in view of the new definition of “energy product used for heating purposes”.
In addition, it should be noted that the AAEDTWA provides for an increase in the excise duty rates for energy products used for heating purposes. Thus, pursuant to the new definition of an “energy product used for heating purposes”, as of 1 January 2016, certain taxable persons may bear additional excise duty liabilities calculated on the basis of the new higher rates even in the cases where the respective persons already possess certificates for EUEED.
Taking into consideration the above mentioned risks, it is recommended that the taxable persons possessing certificates for EUEED issued pursuant to Article 24, para 2, item 4 of the EDTWA:
The grounds for issuance of certificates for EUEED for dual use energy products (pursuant to Article 24, para 2, item 1 of the EDTWA) should also be analyzed in view of the changed definition of “energy product used for heating purposes”.
Assistance by KPMG in Bulgaria
In case the amendment to the definition of “energy product used for heating purposes” as set out in the AAEDTWA raises questions with regard to the possible effects for your company and creates uncertainty about the most appropriate approach to be adopted, professionals from the Tax practice of KPMG in Bulgaria can assist you in analyzing the certificates already issued, examining the Bulgarian and EU court practice relevant to you and identifying future steps to be undertaken.
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