The subject of this thesis is the determination of the legal and accounting nature of emission allowances, CER and ERU credits under Danish law and in accordance to international accounting standards. Furthermore the thesis examines which general principles that can be extracted for a European tax frame for the treatment of these assets. The legal sources generated by the UN Climate Convention, the Kyoto Protocol and the EU Greenhouse Gas Emission Directive are analyzed, to investigate whether or not these legislators have harmonized the legal characterization of emissions rights. It is concluded, that although some characteristics are given, these legal sources give no clear definition of emissions rights. In absence of this harmonization, the characterization must be determined by domestic national law. The legal nature of CO2 allowances under Danish law is laid down by the general treatment of quotas, as an intangible asset. The legal nature of CER and ERU credits under Danish national law is yet unresolved. Although there are good arguments for a classification as financial contracts, the analysis concludes, that the characteristics of the CER and ERU credits, are more aligned with a classification as quotas under intangible assets. The economic analysis focuses on the accounting treatment of emissions rights. There is great uncertainty regarding the accounting treatment of emissions rights. The former interpretation of the accounting treatment of emissions rights (IFRIC 3) was withdrawn because of massive criticism. There are good arguments for an accounting classification as either stock or an intangible asset. On whether emission rights should be considered stock or intangible assets the analysis is inconclusive. The analysis therefore concludes that the classification of emissions rights depends on the use of the assets. The final chapter seeks to derive a set of appropriate guidelines for use in a possible European fiscal framework to minimize problems related to carbon leakage. The analysis is based on the four essential transactions relevant to emission rights’ lifecycle; grandfathering, trading of emission rights, the application or expiration of emission rights and the legal nature of the punishment of any emission commitment. In light of relevant national regulations the assessment concludes five guidelines: 1. The free allocation of EMR should not be taxed 2. Costs incurred in purchasing of ERM should give rise to deductions 3. Sale of ERM should be taxed under the normal rules regarding income 4. Use or expiration should not provide access to deductions 5. Punitive sanctions should not allow deductibility The thesis concludes that it is vital to get a clarification of the question dealing with the classification of EMR since the absence of this disturbs the fulfillment of the Kyoto Protocol. Simultaneously, the classification will have a positive effect on the harmonization of the taxation of Emissions rights in the European Union.
|Educations||MSc in Auditing, (Graduate Programme) Final Thesis|
|Number of pages||89|