On 21 July 2020 the European Council reached an agreement on the next EU financial planning for the period 2021 – 2027 and the COVID-19 emergency recovery package. As part of the latter, EU leaders have announced the introduction of a non-recycled plastic waste-based contribution (so-called “plastic tax”) that will enter into force in 2021.
The new measures could particularly affect companies operating in the retail and consumer goods, chemicals and packaging sectors as well as other industries using plastic as a packaging component. While details are yet to be published, the implementation of a plastic tax may have a direct impact on the company’s P&L and, in certain cases, become a potential bottom line cost for businesses.
Fiscal contribution or tax?
The new environment-related measures1 will be introduced with the aim of expanding the EU’s own revenue resources and secure funding of a recovery package to tackle the economic consequences of the COVID-19 pandemic. Based on the EU Council’s communication, Member States will be required to pay a contribution to the EU budget based on the weight of non-recycled plastic packaging waste they produce.
Whereas certain EU Member States may decide to pay the contribution from their national budget, it is likely that many of them will impose a new form of tax on plastic packaging products. That could possibly result in differing regimes within the EU.
What is in scope?
The new plastic tax will most probably be levied on non-recycled plastic packaging at a rate of EUR 0.80 per kilogram. However, a lot of details are still unclear: i.e. specific categories of products that will fall in the scope of the plastic tax, potential exemptions, tax collection mechanism and respective reporting obligations for impacted businesses.
It is important to note that the contribution on non-recycled plastic is set to apply from 1 January, 2021. EU legislation as well as national rules introducing a plastic tax are therefore expected to be implemented over the coming months and come into force as soon as 2021.
As a next step, the details of the measures that will apply with respect to non-recycled plastic packaging will have to be presented in a legislative draft to be approved by the European Parliament and the Council of the EU before the end of this year.
For the time being, it is uncertain whether the EU will propose a legislative act that will set out a common framework for the implementation of a plastic tax. As a result, EU Member States may be left with a considerable level of discretion to decide on and introduce national measures to tax plastic packaging products.
Certain EU countries, such as Italy and Spain, had already announced draft legislation to tax certain types of plastic products with their measures expected to enter in force in 2021. It will be interesting to monitor to what extent the EU Council’s resolution might affect the implementation of the previously announced national measures or prompt similar actions by other EU Member States.
Given the short time-frame for the new measures to kick in, businesses should already start considering whether their activities could come in scope of the new rules and keep monitoring the legislative processes at EU and national level.
Businesses will want to consider what categories of products are more likely to be impacted by the new rules and how the latter might affect pricing of the products as well as their liability to account for taxes (or levies) and comply with the relevant reporting requirements.
It will be equally important to review the impact of plastic tax measures across the value chain (production, packaging and distribution) and consider how the new obligations will need to be reflected in the contractual relationships with suppliers and customers.
As an immediate step, businesses should consider performing an assessment of their potential future tax exposure, for instance by calculating the impact of the non-recycled plastic packaging components used across their value chain (“worst case” scenario). Through such assessment, businesses can gain a better understanding of the activities that are more likely to fall in scope of the new rules and the key territories to monitor for future developments.
Once more details of the EU legislation become known, we anticipate that businesses will have to accelerate their preparation plans and start working on the implementation of compliance processes depending on the exact set of rules enacted.
As environmental and health-related taxes are evolving at a fast pace, their correlation with VAT will also be an important element that can affect pricing, tax liability and reporting aspects.
Our team will continue following and keep you informed on the latest developments regarding the implementation of environment-related taxes across the EU. If you have any questions, please do not hesitate to contact our specialists.
1 Besides the introduction of a non-recycled plastic waste based contribution, the EU Council has also announced that proposals will be tabled by next year to introduce a carbon adjustment measure and a digital levy by 1 January 2023, as well as a revision of the EU’s CO2 trading scheme.