Expected to come into force by 2022, the new Swiss CO2 Act is designed to encourage businesses to take action to reduce further their CO2 emissions. Businesses that do not commit to implement a sustainable business strategy may face financial consequences that could impact their profitability.
Provided that the revised CO2 Act is approved by referendum on 13 June 2021, the new regulations may result in potentially increased tax liabilities for businesses operating across various sectors, such as the oil industry, manufacturing, automotive and transportation sectors. The increase in the CO2 levy and the various penalties to which companies may be subject in case of failure to comply would become definitive costs that could affect their profitability and challenge their current business model.
Businesses using thermal fossil fuels
The revised CO2 Act provides for an increase of the CO2 levy on thermal fossil fuels. As a result, all businesses using thermal fossil fuels, such as heating oil, natural gas and coal may be impacted by the increase of the CO2 levy. Those who commit to improve the efficiency of their installations with regards to CO2 emissions by a certain amount each year until 2030 will, however, be able to avoid an increase in their tax liabilities by claiming a refund of the CO2 levy.
With the revised CO2 Act, producers and importers of fossil fuels in Switzerland will have to compensate a higher rate of their CO2 emissions. In case of failure to comply, the new measures may therefore result in higher penalties imposed that cannot be offset by a surcharge on fuel, resulting in a potential loss of profitability. In order to avoid these penalties, businesses especially in the oil industry may invest in CO2 reduction measures in Switzerland and abroad as well as in the transition to biofuels.
Automotive manufacturers and importers will be subject to progressively tighter CO2 emission targets for new passenger cars and new light commercial vehicles. New target values will also be introduced for heavy commercial vehicles imported into or produced in Switzerland. In order to avoid paying significant penalties that could impact their margins, automotive companies will want to accelerate their transition to the commercialization of eco-friendly vehicles.
Real estate and construction sectors
According to the revised CO2 Act, new buildings constructed as of 2023 must no longer generate any CO2 emissions. Stricter CO2 emission thresholds will also be imposed with respect to existing buildings. Businesses in the real-estate and construction sectors are therefore encouraged to continue investing in energy efficient building construction methods and renovation plans to avoid dry loss of market share.
Airlines and private jet operators
With the aim to encourage the use of alternative means of transport, the revised CO2 law provides for an incentive tax on flight tickets and private jet flights departing from Switzerland. As a consequence, both Swiss and foreign airlines may be subject to a new tax and have to implement new compliance processes.
As the new measures provided in the CO2 Act are expected to come into force in 2022, companies should consider performing an assessment of their potential future tax exposure and accelerate the integration of sustainability objective into their activity to mitigate the risk of environmental tax costs.
The new CO2 acts may give a significant competitive advantage to businesses that develop a strong sustainability strategy, making it vital to move towards eco-friendly production methods. Businesses will want to consider the implications of the necessary transformation of the infrastructure and the supply chain on other taxes in order to secure the transition from a fiscal perspective.
It should be noted that the revised legislation should create new opportunities through the support of the new climate fund for sustainable investments and innovative technologies. However, it may be worthwhile to verify beforehand the treatment of financial aids and investments used to finance sustainability-related projects in relation to other indirect taxes.
Our team will continue monitoring and keep you informed on the latest developments regarding the implementation of environment-related taxes in Switzerland. If you have any questions, please do not hesitate to contact our specialists.