New VAT rules for gas and electricity

The Council on 7 October adopted a Directive modifying the rules for value added tax (VAT) on gas and electricity. The Commission welcomed the Council's Decision, stating that the new Directive would improve the operation of the internal market for energy.

The existing rules worked well in a national context, but are no longer suitable in light of the liberalisation and the increasing cross-border supplies of gas and electricity.

One key difficulty lies in determining where the 'place of supply' of gas and electricity is located. This in turn has lead to different interpretations of the rules by Member States and difficulties for traders supplying gas and electricity across borders. The new rules establish a clear place of supply for pipeline gas and electricity, distinguishing between supplies to 'taxable dealers' and supplies to consumers.

For consumers, gas and electricity will now be taxed according to where they are consumed rather than where they are produced. This will help eliminate problems such as double taxation, non-taxation and distortion of competition between traders.

The Member States will be required to implement the new measures by 1 January 2005.