Derivatives and VAT: the (sustainable) lightness of the differential / Corriere Tributario 12/2024

With Resolution no. 1/E of 3 January 2022, the Italian Revenue Agency expressed the opinion that the bi-directional cash-settlements that accrue in relation to derivative finance contracts having the price of electricity as an underlying commodity are subject to VAT, albeit under an exemption regime, as they can be ascribed to transactions relating to financial instruments, and that the same rules that define the methods for determining the taxable amount for repos apply to the determination of the taxable amount of such derivatives contracts. In the “Corriere tributario” no. 12 of 2024, Pierpaolo Maspes and Raffaele Corso highlight the reasons why, in their opinion, the interpretation expressed by the Revenue Agency raises concerns. The consideration of a derivative contract can be recognized, in fact, in the amount possibly due for the conclusion of the derivative contract itself, but certainly not in the uncertain bi-directional cash-settlement due at the time of execution of the contractual agreement, a bi-directional cash-settlement whose lightness can therefore be well maintained, in terms of the non-recognition in the former of the nature of consideration. These concerns find, in fact, a very recent confirmation by the legal services of the European Commission which, in the context of the work of the VAT Committee, have analyzed, in Working paper no. 1097, the VAT treatment of the sums paid on the basis of the so-called “Two-Way contracts for difference”, highlighting that: “It is the Commission services’ opinion that there are serious doubts that the hedging provided by the Belgian State to the electricity generator constitutes a supply of service for consideration as there is seemingly no direct link between the hedging and the bi-directional payments within the meaning of Article 2 of the VAT Directive”.

Corriere Tributario 12 2024