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Environmental Taxes recent updates – EU, Belgium, Italy, Spain, UK, Slovenia

Indirect Tax Matters | March 2022

European Union - European Court of Auditors - Review 01/2022: Energy taxation, carbon pricing and energy subsidies

On 31 January 2022, The European Court of Auditors published a report assessing whether existing energy taxes, carbon pricing, and energy subsidies within the EU assist in achieving EU climate goals. The auditors examined the Energy Taxation Directive, the existing Emissions Trading System, the Commission's proposals to update this legislation, as well as current energy taxation in the Member States. In addition, the auditors reviewed how carbon pricing instruments and energy subsidies incentivise climate action.

The report states that tax levels vary widely between sectors and between energy carriers. Under the current energy taxation directive, more polluting energy sources may have a tax advantage compared to more carbon-efficient ones. For example, coal is taxed less than natural gas (which is more carbon-efficient), and some fossil fuels are taxed significantly less than electricity (which could be produced by low carbon sources).

In addition, most Member States impose high taxes on fuels, while some others keep taxes close to the minimum level set by the Directive, which can create distortions in the internal market. Low carbon prices and low energy taxes on fossil fuels increase the relative cost of clean technologies and delay the energy transition. While some energy subsidies can lead to a less carbon-intensive economy, the auditors found that fossil fuel subsidies hinder an effective energy transition. Total fossil fuel subsidies in member states exceed €55 billion per year, and some Member States spend more on fossil fuel subsidies than on renewable energy subsidies.

The report also refers to the “Fit for 55” legislative package published by the European Commission in July 2021 with the purpose of cutting greenhouse gas emissions by at least 55% by 2030. This legislative package includes the following proposals:

  • Revision of the Energy Taxation Directive to align taxation level more closely with energy content and the environmental performance of energy carriers.
  • Extension of Emission Trading System to maritime transport and introduces a separate emission trading system for road transport and buildings.
  • The gradual phasing out of the free allowances linked to a risk of carbon leakage is accompanied by the proposed phasing in of the Carbon Border Adjustment Mechanism.

The report concludes that phasing out fossil fuel subsidies by 2025, to which the EU, and its Member States have committed, will be a challenging social and economic transition. In particular, the social implications of the different initiatives must be considered, as they can be significant and have a negative impact on the transition to a greener economy if not addressed. Perception of unfair treatment for some groups or sectors may result in resistance to progress in this area.

Belgium - VAT treatment of charging stations and charging of electric vehicles

On 20 December 2021, the Belgian VAT authorities published a new administrative guide (Circular 2021/C/113) on VAT issues related to installing electric vehicle charging stations and the supply of goods and services in connection with these stations. In addition to this VAT guide, a specific measure has been taken to ensure that the charging of electric vehicles does not lead to an additional excise duty obligation.

Installation of charging stations

The circular confirms that installing a freestanding charging station on the ground (e.g., along a road or in a public or private car park) will be considered works to the property. However, the installation of a charging station in or on a building (e.g., wall mounted) cannot in itself be considered as works to the property. However, the charging station can become part of the building's electrical installation and therefore assimilate to a work on property.

For installation work at business premises, VAT at 21% is payable, and the reverse charge mechanism for works on the immovable property can be applied if all conditions are met. Companies can usually deduct the full amount of input tax incurred on the installation, as the 50% deduction limit for car-related costs does not apply.

If a company installs a charging station in an employee's home, the installation may qualify for a reduced VAT rate of 6%, if the property is more than 10 years old, and the tax is deductible to the extent of the professional use of the vehicle unless the employer charges the employee for the use of the charging station. Even in this case the 50% limit for car-related costs does not apply.

Charging of electric vehicles

The Belgian VAT authorities specified that electric vehicle charging should be qualified as a supply of electricity instead of a VAT service. The circular also outlines how VAT should be applied in the supply chain of charging point operators, electric vehicle suppliers and customers.

Companies can deduct VAT on the cost of charging up to 50% of the professional use of the vehicle in accordance with the standard VAT deduction rules for company cars.

If the charging is carried out in the office and the electricity consumed at the charging station cannot be distinguished from the company's other electricity consumption, then the deductible portion must be calculated under the supervision of the tax authorities.

If the charging is carried out at the employee's home and the employer reimburses the employee for the electricity used to charge the company car, the VAT authorities expressly acknowledge that such reimbursement do not fall within the scope of VAT and that the employer cannot deduct the VAT included in the amount reimbursed from the electricity costs originally incurred by the employee as an individual.

Italy – Plastic packaging tax

The introduction of the plastic packaging tax in Italy, that should have come into force on 1 January 2022, has been postponed to 1 January 2023 by Budget 2022.
This tax was introduced by Budget 2020 and should have originally been implemented from 1 July 2020. It was then postponed several times due to the COVID-19 pandemic until this last deferment.

As mentioned in our previous newsletter, Italian plastics tax will apply to the production, importation, or Intra-EU acquisition of a single use plastic products (such us bottles, carrier bags, food containers and EPS packaging) at 45 Euro cent per kilogram of plastic product.

An exemption is provided for certain items, such us packaging for medical supplies. Biodegradable plastics will also be exempt from the tax.

Spain – Plastic packaging tax

The Spanish Parliament is currently debating a similar tax on plastic packaging. The related draft bill has been approved by the Congress and referred to the Senate for its further approval.

The Spanish plastic packaging tax is expected to enter into force from 1 January 2023 and will apply at 45 Euro cent per kilogram on the manufacture, importation, or intra-community acquisition of non-reusable plastic packaging for its final use within the Spanish market of plastic product.

United Kingdom – Plastic packaging tax

While other countries are postponing their plastic taxes, the UK's plastic packaging tax is on track to be introduced in April 2022.

The UK had initially indicated the introduction of the plastic packaging tax back in Budget 2018. HMRC published the relevant guidance on 17 December 2021.

The tax will apply to plastic packaging that does not contain at least 30% recycled plastic and will be chargeable at £200 per tonne and apply to businesses that manufacture/import above a minimum threshold of ten tonnes of relevant packaging. A minimum threshold has been introduced to ensure that small businesses are not disproportionately affected by the tax.

Certain exemptions will apply such as the plastic used for the immediate packaging of pharmaceutical products. See our detailed article Plastic Packaging Tax (PPT) – Effective from 1 April 2022

Slovenia – Deduction of VAT on emission-free vehicles

Slovenia has adopted a bill that introduces new rules regarding the deduction of the VAT on emission-free vehicles used by a taxable person for business purposes.

In particular, the input VAT related to the purchase of a motor vehicle can be deducted by a taxable person if the two following conditions are met:

  • The motor vehicle is carbon dioxide emission free, such us an electric car.
  • Total value of the vehicle, including VAT and other charges, does not exceed the threshold of €80,000.

The deduction also applies to the input VAT of the purchases of fuels, lubricants, spare parts, and services made for the motor vehicle.

In a previous edition we explored some of the main environmental tax measures in Ireland. Ireland has yet to introduce a plastic packaging tax and we would also welcome the introduction of more incentives for increased energy efficiency.

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