On April 1, 2020 a proposal for new regulations of chemical tax in clothes and shoes was presented to the government. The committee has suggested that the proposal should be effective as per 1 July, 2021.
We have in a previous TaxNews mentioned that there has been plans to introduce a new tax on dangerous chemicals in clothes and shoes. On April 1, 2020 the result of the Swedish Government Official Report on this topic was published. The new regulation is suggested to come into force on April 1, 2021, but with the tax liability effective from July 1, 2021.
What does this report say?
The new tax aims to reduce the usage of dangerous chemicals during the production of clothes and shoes. It affects all clothes and shoes that are produced or brought to Sweden from abroad, with the exceptions of protection gear and toys.
The tax rate is 40 SEK/kg with a possibility for reductions up to 95% depending on the content of chemicals. There may be an additional tax of 19 SEK/kg if the product includes rubber material, polyvinyl chloride or polyurethane, and another additional tax of 19 SEK/kg in case the product is made weatherproof.
Who will be affected by the new chemical tax on clothes and shoes?
Normally the tax liability is due when the clothes or shoes are produced, imported or brought into Sweden from another EU-country. In some cases, intermediary companies could be liable to pay the tax if the total values of the intermediates sales to Sweden rises above 100,000 SEK during the present or previous tax year.
According to report, it should be possible to register as a so called warehouser (Sw. lagerhållare), at the Swedish Tax Agency in the same way as when dealing with the chemical tax on electronic- and white goods. As a warehouser there will be a possibility to postpone the taxation of the products, and the tax returns are filed on a monthly basis. The tax liability for warehousers is due when the products are sold to someone who is not registered as a warehouser or when warehouser bring the products to a retail store for sale purposes.
Instead of being registered as a warehouser one could chose to register as a registered recipient or as an EU-merchant (“registrerad EU-handlare”). For both these options the tax liability is due when the goods are brought into Sweden, but the reports are filed monthly. For companies which are not registered for any of the above-mentioned licenses, the chemical tax returns should in general be filed within 5 days of each taxable event.
When the chemical tax on electronic and white goods was introduced it was strongly criticized and this is also the case with this proposed new chemical tax on clothes and shoes. It is our understanding that this tax will affect a lot of companies, both in Sweden and abroad, which are not used to handle excise duties.
Based on the report we believe that the costs for clothes and shoes businesses will increase, not only for the tax itself but also for tax reporting as well as laboratory analyses in order to enable deductions. This will most likely have an effect on the consumer price.
Even clothes and shoes that does not contain any dangerous chemicals might be in-scope of the tax, but with a large deduction possibility. However, the compliance cost would in our view likely increase compared to the current situation.
We also see a risk for double taxation. The newly introduced tax on waste incineration could be due on clothes and shoes that has already been subject to the chemical tax. Additionally, there is a risk of double taxation when handling second hand clothes. A warehouser that sells second hand clothes must be able to prove that the clothes are already taxed to avoid double taxation which might be quite a challenge. Moreover, there is a risk for double taxation when non-profit associations send donated, already taxed clothes abroad to be sorted before sending them to Sweden again for second hand sales.
You are welcome to contact us in case you have questions regarding the current rules and regulations, coming changes, how to report the tax or anything else.
The article in Swedish
Head of Trade & Customs KPMG Sweden
+46 72 368 85 80