The issue of the input tax surplus, which puts a considerable strain on the balance sheet and the cost structure of European Commodity Clearing AG (ECC), the clearing subsidiary of European Energy Exchange AG (EEX), will be resolved by EEX and ECC through the establishment of ECC Luxemburg S.à.r.l. According to the VAT regulation which is uniform throughout the EU, the buyer’s place of residence is decisive with regard to the taxation of power and natural gas. This means: Sales by trading participants in Germany are settled at 19% sales tax, whereas purchases by trading participants from abroad are paid without sales tax.
The input tax surplus essentially results from the Power Spot Market. A considerable amount of the power traded through the exchange is bought by foreign trading participants. This causes an imbalance in the financial settlement by the clearing house: ECC, which steps in as the central counterparty positioning itself between the trading participants, tends to “buy“ from German suppliers and, consequently, pays sales tax for these purchases; however, sales tax is not charged for the ”resale“ to foreign trading participants. The “input tax surplus“ which is created this way needs to be prefinanced by ECC through its own funds or loans until sales tax reimbursement by the revenue authorities (usually after a period of 45 days). In the year 2008, this input tax surplus amounted to approx. EUR 1.5 million per day on average; the interest expenses for the required loans including commitment fees amounted to EUR 2.2 million for the year.
After all other attempts at finding a solution and proposals for a solution by EEX and ECC had been rejected by the revenue authorities as being inconsistent with current European legislation in the spring of 2009, “we now have to establish a foreign subsidiary as the last resort in order to meet the significant financial risk for ECC arising from the unforeseeable input tax surpluses“, the Group’s Chief Executive Officer, Dr. Hans-Bernd Menzel, explains the move into the neighbouring country. And the selection of Luxembourg as the site for the ECC subsidiary was certainly not a matter of chance: There is only one trading participant in this EU member state. As a result of this, all other trading participants are non-nationals which are given the same treatment in terms of sales tax from the perspective of the new company.
The establishment of the subsidiary in Luxembourg in the legal form of an S.à.r.l. (Société à responsabilité limité) corresponds to the German legal form of a GmbH (limited liability company) and its set-up “is supported by the Saxon State Ministry of Finance“, as Iris Weidinger, CFO of EEX Group emphasises. “The Ministry is aware of the negative impact of the input tax surplus on the earnings situation of ECC and has taken the decision in favour of this solution, the details of which are currently still being coordinated, together with us. And, below the line, Leipzig as the ECC site also benefits from the establishment of the new subsidiary“, Ms. Weidinger explains further. “Since the input tax surplus is removed and financing will not be needed, the annual results achieved by EEX and ECC will be improved – and the companies will pay over more business tax to the City of Leipzig as a result.“
In future, the Luxembourg-based ECC subsidiary, which will take up operations in 2009, will step into the supply chain as an additional contractual partner. However, this will only concern the settlement of deliveries of commodities from transactions in power, natural gas and emission allowances which are settled by ECC.
European Commodity Clearing AG (ECC) is a clearing house whose range of services comprises clearing and settlement services for exchange and over-the-counter transactions in energy. The Leipzig-based company was established in 2006 with the spin-off and transfer of the clearing activities of European Energy Exchange AG (EEX) to this subsidiary.
Currently, European Commodity Clearing AG provides clearing as well as physical and financial settlement of transactions concluded on the European Energy Exchange, EEX Power Derivatives GmbH, EPEX Spot SE, the Dutch ENDEX European Energy Derivatives Exchange N.V. and the French Powernext SA. In 2008, the settlement volume amounted to more than EUR 100 billion.