Climate Taxes: This is What the EU Green Deal Means for Companies

In 2030 CO2 emissions should be 55 percent lower than comparative levels from 1990. That is the goal of 'Fit for 55', a package of measures from the European Commission. But this is only one element on the path to an ultimately climate friendly economy. Another is the EU Green Deal, which is meant to further advance decarbonisation. 

Tax measures also play an important role on the path to greater sustainability. It is therefore recommended for companies' tax departments to obtain an overview of the requirements and possibilities that are coming their way. In our white paper 'Environmental Taxes' you will find essential information.

One of the EU's goals is the strengthening of the circular economy. Plastic is one of the products on which the EU has its focus. To reduce the usage of plastic, the EU states place a levy on every kilogram of plastic waste. Some EU states pass this on to companies in the form of a tax. It is important for tax managers to know where which rule is applied. Spain and Italy, for instance, are planning a plastics tax of EUR 0.45 per kilogram starting from 2023, although the EU levy has been EUR 0.80 per kilogram since 2021. The United Kingdom, on the other hand, began in April 2022 at GBP 0.20 per kilogram.

The reform of the Energy Taxation Directive (ETD) is a measure which affects everyone – both companies and private individuals. Companies must expect that additional financial and non-financial burdens will fall on them due to this part of the EU Green Deal.

The reform will lead to an increase in administrative work for tax departments as the basis of assessment for taxation is to be changed. Contracts and IT systems need to be adapted and tax returns and reliefs need to be prepared again.

The Carbon Border Adjustment Mechanism (CBAM) is meant to prevent the EU climate protection regulations from becoming a locational disadvantage. CBAM stipulates that certificates be acquired for certain CO2 intensive import goods. The mechanism is enormously challenging for companies as, among other things, the production conditions of goods acquired abroad must be ascertained. According to current plans, CBAM mainly affects products such as aluminium, iron, fertiliser, cement and electricity, but a widening of the scope is conceivable.

The white paper 'Environmental Taxes' illustrates that the challenges and possibilities via the shift to a sustainable economy are also manifold for tax departments. And the environmental tax measures are not the only ESG relevant topics: ESG reporting is also becoming increasingly important and is more and more reliant on data from tax departments. The switch of supply chains to more sustainable value creation, that has been initiated by some but not all companies, also requires a close look at the transfer pricing model – in addition to the impact on indirect taxes and customs duties. If, as part of the ESG strategy, a company promotes mobile working across country borders ('Work from anywhere') then topics such as payroll tax and permanent establishment risks come into play. 

To get informed about the implications for tax departments, download the white paper here.