The European Council in July 2020 reached an agreement on the next EU financial plan for the period 2021-2027 and the coronavirus (COVID-19) pandemic emergency recovery package. As part of the COVID-19 package, EU leaders announced the introduction of a non-recycled plastic waste-based contribution (a “plastic tax”) that will be effective 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 profit and loss and, in certain cases, become a potential bottom line cost for businesses.
The new environment-related measures would 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, EU Member States would be required to pay a contribution to the EU budget based on the weight of non-recycled plastic packaging waste they produce.
While certain EU Member States could decide to pay the contribution from their national budget, it is likely that many of them would impose a new form of tax on plastic packaging products—that could possibly result in differing regimes within the EU.
The new plastic tax would most probably be levied on non-recycled plastic packaging at a rate of € 0.80 per kilogram. However, many details are still unclear (i.e., specific categories of products that will fall in the scope of the plastic tax, potential exemptions, tax collection mechanisms 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 to be effective as soon as 2021.
As a next step, the details of the measures that would apply with respect to non-recycled plastic packaging must 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 would 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 be effective in 2021.
Given the short time-frame for the new measures to be effective, businesses need to 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 affected by the new rules and how this might affect pricing of the products as well as their liability to account for taxes (or levies) and compliance 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 may want to 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, 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 value added tax (VAT) would also be an important element that can affect pricing, tax liability, and reporting aspects.
Read a September 2020 report prepared by the KPMG member firm in Switzerland
Read a September 2020 report prepared by KPMG’s EU Tax Centre
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