Climate taxes: What the EU Green Deal means for companies

CO2 emissions should be 55 per cent lower in 2030 compared to 1990 levels - that is the goal of "Fit-for-55", a package of measures from the EU Commission. However, this is only one element on the way to an ultimately climate-friendly economy. Another is the EU Green Deal, which aims to drive forward decarbonisation.

Tax measures also play an important role on this path to greater sustainability. It is therefore advisable for companies' tax departments to gain an early overview of the requirements and opportunities that lie ahead. You can find the key information in our white paper "Environmental Taxes".

The Carbon Border Adjustment Mechanism (CBAM) is intended to prevent the EU's climate protection regulations from becoming a disadvantage for business locations. The CBAM requires certificates to be purchased for certain CO2-intensive imported goods. The mechanism is challenging for companies as, among other things, the production circumstances of goods purchased abroad must be determined. The CBAM initially affects cement, electricity, fertilisers, aluminium, iron, steel, hydrogen and some upstream and downstream products (primarily iron, steel and aluminium). It is planned to extend the scope of application to all sectors subject to EU emissions trading by 2030. Since 1 October 2023, affected companies have already been subject to an initial statutory reporting obligation.

One of the EU's goals is to strengthen the circular economy. One product that is at the centre of this is plastic. In order to reduce its consumption, the EU states pay a levy for every kilogramme of plastic waste. Some EU countries pass this on to companies in the form of taxes. It is important for those responsible for taxes to know which regulation applies where. Spain and Italy, for example, are planning a plastic tax of €0.45 per kilogramme from 2023, although the EU levy has already been €0.80 per kilogramme since 2021. The United Kingdom, on the other hand, started with £0.20 per kilogramme in April 2022.

The reform of the Energy Taxation Directive (ETD) is a measure that affects everyone - companies and private individuals alike. Companies must expect to face additional financial and non-financial burdens as a result of this part of the EU Green Deal. The reform will lead to a higher administrative burden for tax departments, as the assessment basis for taxation is to change. Contracts and IT systems will have to be adapted and tax declarations and reliefs will have to be reorganised.

The white paper “Environmental Taxes” makes it clear: The challenges and opportunities arising from the transition to a more sustainable economy are also manifold for tax departments. And environmental tax measures are not the only issues relevant to sustainability: sustainability reporting is also growing in importance and increasingly relies on data from tax departments. The potential transition of the supply chain towards more sustainable value creation also requires a close examination of the transfer pricing model – in addition to the implications for indirect taxes and customs duties. If, as part of its sustainability strategy, a company also promotes remote working across national borders (“work from anywhere”), issues such as payroll tax and the risk of being classified as a permanent establishment come into play. To find out more about the implications for the tax department, download the white paper here.