EGC VAT Case – T-138/26 (Dyrektor Krajowej Informacji Skarbowej) – Questions – VAT Exemption for Cash-Settled Greenhouse Gas Emission Allowance Forwards

Summary

Facts: M. S.A., a bank, engages in derivative transactions involving greenhouse gas emission allowances, some of which are non-deliverable forward transactions settled solely in cash without ownership transfer. The bank sought clarification on whether these cash-settled transactions are exempt from VAT under Polish law.
Issue: The core issue is whether forward sales of greenhouse gas emission allowances with a cash settlement option, where there is no physical delivery or ownership transfer, qualify for VAT exemption under EU and Polish law. The Polish tax authority and regional administrative court concluded that these transactions are not exempt, interpreting Polish VAT law to exclude such transactions if physical delivery is possible.
Bank’s Position: M. S.A. argues that its cash-settled non-deliverable forward transactions, being purely financial and not involving actual delivery of allowances, should be VAT exempt. It contends that the Polish VAT law’s exclusion scope is wider than the EU Directive 2006/112/EC and that the possibility of physical delivery, even if not exercised, should not negate the exemption for cash-settled transactions.
Questions to the Court: The Supreme Administrative Court in Poland has referred a question to the Court of Justice of the European Union. It asks for an interpretation of Article 135(1)(f) read in conjunction with Article 15(2) of Council Directive 2006/112/EC regarding whether it mandates VAT exemption for forward sales of greenhouse gas emission allowances with a cash settlement option, even when there’s no delivery or ownership transfer.
Articles Discussed: The case revolves around the interpretation of Article 135(1)(f) and Article 15(2) of Council Directive 2006/112/EC (the VAT Directive) and their implementation in Polish law, specifically Articles 43(1)(41) and 43(16)(5) of the Law on VAT. The central conflict lies in the scope of the VAT exemption for financial instruments, particularly how the possibility of physical delivery of underlying assets affects the exemption for cash-settled derivatives.

Articles in the EU VAT Directive 2006/112/EC

Article 15(2)
Member States may regard the following as tangible property:
(a) certain interests in immovable property;
(b) rights in rem giving the holder thereof a right of user over immovable property;
(c) shares or interests equivalent to shares giving the holder thereof de jure or de facto rights of ownership or possession over immovable property or part thereof.

Article 135(1)
(f) transactions, including negotiation but not management or safekeeping, in shares, interests in companies or associations, debentures and other securities, but excluding documents establishing title to goods, and the rights or securities referred to in Article 15(2);

Questions

Must Article 135(1)(f), read in conjunction with Article 15(2), of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, be interpreted as meaning that forward sales of greenhouse gas emission allowances with a cash settlement option are exempt from tax in a situation where there is no delivery of the underlying instruments and no transfer of ownership of the greenhouse gas emission allowances?

Source