Transitional period for carbon border adjustment mechanism starts

The Carbon Border Adjustment Mechanism (CBAM) entered into force on 1 October 2023. This is a price adjustment mechanism for carbon-intensive goods entering the EU market, aimed at ensuring a more level playing field for EU businesses. The new requirements apply to certain importers, but will also affect others in the supply chain. The CBAM covers the following types of goods: electricity, cement, certain iron, steel and aluminium products and fertilisers.

The CBAM adjusts the price of products so that imports of these types of goods from third countries where producers have not had to bear the costs of environmental requirements are brought into line with prices on the EU market. This way, producers outside the EU will be included in the system (ETS). The aim is to prevent carbon emissions being transferred to third countries and the advantage of producing in such regions.

European Commission Implementing Regulation 2023/1773 establishes the reporting obligations related to the carbon border adjustment mechanism, the rules for calculating the emissions associated with goods and the data to be submitted to fulfil the reporting obligations. During the transitional period from 1 October 2023 to 31 December 2025, operators will only be required to submit data on the emissions associated with the imported product, but no charge will be applied. During this period, it is most important for the presenters of reports to report verifiable data on the goods covered and to manage information on the origin of the goods and the supply chain.

The deadline for the first report is 31 January 2024 and this report concerns goods imported in Q4 2023. Afterwards, the report must be submitted within one month of the end of the quarter. The content of the reporting obligation will change during the transitional period, as the default values for the calculations are not yet finalised (they will be specified in 2025) and some variations are allowed for the underlying data.

Failure to report could result in a fine of EUR 10-50 per tonne of emissions not reported. The fine will increase in line with the European Consumer Price Index.

Regulation (EU) 2023/956 of the European Parliament and of the Council establishing carbon border adjustment mechanism is available here: EUR-Lex – 32023R0956 – ET - EUR-Lex (

Commission Implementing Regulation (EU) 2023/1773 laying down the rules for the application of Regulation (EU) 2023/956 of the European Parliament and of the Council as regards reporting obligations for the purposes of the carbon border adjustment mechanism during the transitional period is available here: EUR-Lex – 32023R1773 – ET – EUR-Lex (

The European Commission’s guides and webinars in English are available here: Carbon Border Adjustment Mechanism (

List of non-cooperative jurisdictions for tax purposes is extended

The list of non-cooperative jurisdictions for tax purposes includes countries that have not started a constructive dialogue with the EU on tax good governance or that which have failed to fulfil their commitments to carry out the necessary reforms. The list (Annex I) was updated on 17 October to include Antigua and Barbuda, Belize and Seychelles. The Council of the EU found that there are shortcomings in the exchange of tax information on request in all three jurisdictions.

Three jurisdictions were excluded from the list: British Virgin Islands, Costa Rica and Marshall Islands. The British Virgin Islands were removed from the list because they improved the framework for information exchange on request. The British Virgin Islands are being reassessed against the OECD standard, but so far they have been included in the situation review document (Annex II). Costa Rica was removed from the list because it changed the harmful aspects of the country’s regime related tax exemptions on foreign income. The Marshall Islands were removed from the list due to significant progress in enforcing economic content requirements.

Technical description of the VAT return for 2024

As the VAT rate will change at the beginning of 2024, the VAT return forms will also change. The website of the Estonian Tax and Customs Board provides the technical description and data format (XML and CSV file format) of the VAT return for 2024. The report must be submitted for the first time in the new form for January 2024, i.e. by 20 February 2024.

For more information see: Technical information on services | Tax and Customs Board (

Supreme Court Ruling No 3-19-2244/19

Unjustified tax buffer caused by non-monetary contribution not in conformity with market conditions

The company acquired LPG tanks from a related person within the meaning of § 8 of the Income Tax Act, the value of which was EUR 60,000, of which EUR 10,000 was paid by bank transfer and the remaining amount was deemed to have been paid on the basis of the valuation report of a non-monetary contribution (capital increase).

However, the tax authority found that the price of liquid gas tanks (and thus the non-monetary contribution) was not in conformity with market conditions, because the seller had previously paid significantly less for the liquid gas tanks than in the disputed transaction. Therefore, the tax authority issued a tax assessment that income tax must be paid on the amount between the market price and the sales price pursuant to § 50(4) of the Income Tax Act. This subsection stipulates that if the price of a transaction concluded between a resident legal person and a person associated with the resident legal person differs from the market value of the above transaction, income tax shall be imposed on the amount that the taxpayer would have received as income or the amount that the taxpayer would not have incurred as expenses if the transfer prices had corresponded to the market value of the transaction.

The Supreme Court took the following positions:

  • the transfer of a non-monetary contribution is by its nature a transaction to which § 50(4) of the Income Tax Act does not apply, because, irrespective of the value of the transaction, neither party to the transaction receives any income or incurs any expense;
  • the taxation of contributions to and payouts from a company’s share capital is governed by special provisions in § 50(2) of the Income Tax Act, under which a resident company pays income tax on the difference between contributions to and payouts from its share capital;
  •  the tax authority has the right to verify whether the value of the non-monetary contribution transferred to the company’s share capital corresponds to the market value (the valuation report submitted to the commercial register is not binding evidence in tax proceedings) and if the verification establishes that the item of the non-monetary contribution has been valued at more than the market value, the taxpayer has made a false declaration and the tax authority has the right to issue a tax assessment reducing the declared value. As a result, the amount that the company will be able to pay out tax-free in the future will be reduced.
  • Therefore, the tax authority has the right to revalue the non-monetary contribution and to exclude situations where the recognition of the contribution at a higher value than the market value creates an unjustified tax exemption (tax buffer).

The Supreme Court annulled the tax assessment due to incorrect application of substantive law and explained that the tax authority has the right to issue a new tax assessment, which can reduce the amount of the equity contribution declared by the appellant under § 50(2) of the Income Tax Act.

Reference to the decision: 3-19-2244/19


Compensation for damage to the employer’s reputation

On 9 August 2023, the Supreme Court ruled on the employee’s obligation to compensate the employer for damage to the employer’s reputation and clarified the employer’s obligations to prove the damage.

After the termination of the employment contract, the employee posted messages on his Facebook page describing his employer as follows: “The bad mood of the bosses made the office staff shiver” and “The management decided that it had the right to systematically and openly humiliate and insult”. The employer decided to bring an action against the employee and claim damages. As evidence, the employer provided the opinion of a media expert that it would be appropriate to implement a communication plan within three months to compensate for the damage caused by the posts, at a cost of EUR 7,200.

The County Court found that the employee had to have realised that the allegations he had made could harm the plaintiff’s business by publishing the posts, and partially upheld the employer’s claim for damages. The Circuit Court upheld the judgment of the County Court, but the Supreme Court took a different position.

The Supreme Court explained in its judgment as follows:

  • a legal entity cannot (by its very nature) bring claims for non-material damage for defamation;
  • however, a legal entity may still have a claim for compensation for material damage against a person who causes material damage to it by unlawfully and intentionally disclosing incorrect information about the entity;
  • disclosure is unlawful, inter alia, if it interferes with the economic activities of a legal entity, for example if an economically harmful fact about the employer is disclosed;
  • damage may consist of loss of turnover, customers leaving and difficulties in entering into new contracts (including recruiting employees). If the plaintiff finds that the damage to its reputation requires a campaign to improve its reputation, it must show what the material damage to its reputation was;
  • the employer must also show a causal link between the disclosure and the damage.

It can therefore be concluded from the decision that compensation for reputational damage is possible, but that there must be concrete evidence of the damage suffered in order to go to court.

Reference to decision: 2-20-5869

Draft act on protection of whistleblowers puts an extra burden on businesses

The draft law, which was recently adopted by the Riigikogu for first reading, significantly reduces the number of offences for which employers are obliged to ensure the confidentiality and protection of whistleblowers. These changes could make the application of the law unexpectedly difficult for businesses.

You can find the full article here: Draft act on protection of whistleblowers puts an extra burden on businesses (