Euro Tax Flash from KPMG's EU Tax Centre

European Commission — Clean Industrial Deal — Competitiveness — Tax incentives — Accelerated Depreciation — Immediate Expensing — Tax Credit — Loss Carry Forward Rules — State aid

On July 2, 2025, the European Commission issued recommendations on tax incentives to support the Clean Industrial Deal. The recommendations are in line with the recently-published Clean Industrial Deal State aid Framework (CISAF).

The recommendations set out common guiding principles for Member States to design cost-effective tax measures that stimulate investment in clean technologies and industrial decarbonization. Key instruments suggested for enhancing clean investment include:

• Accelerated depreciation: Member States are recommended to incentivize the acquisition or lease of clean technology equipment through accelerated depreciation, up to full and immediate expensing.
• Tax credits: Member States are recommended to introduce tax credits supporting the creation of additional manufacturing capacity and tax credits supporting investment in energy efficiency and greenhouse gas emission reduction. From a design perspective, the tax credits should primarily be deducted from the corporate tax liability but could also be offset against other national taxes due (where feasible in national tax systems). The tax credits should also be aligned with the design conditions set out by the EU Minimum Tax Directive with respect to Qualified Refundable Tax Credits.

The recommendations further refer to design restrictions established by the CISAF, where the accelerated depreciation or tax credit measures involve State aid (i.e., favor certain undertakings or the production of certain goods) to ensure that the measures are considered compatible with the internal market.

On June 25, 2025, the European Commission adopted the Clean Industrial State Aid Framework (CISAF). The CISAF provides conditions for certain types of aid measures to be considered compatible with EU State aid rules with the aim of promoting investments in renewable energy, industrial decarbonization, and clean technology manufacturing. The CISAF generally allows aid to be granted in any form, including direct grants and tax advantages (e.g., tax credits and accelerated depreciation). The Framework also lays down specific conditions for State aid schemes in the form of accelerated depreciation granted to incentivize acquisition or lease of clean technology equipment.

The framework replaces the Temporary Crisis and Transition Framework (TCTF) adopted in March 2023, with the CISAF applying as of the adoption date of June 25, 2025, until December 31, 2030.

Prior to the relaxation of EU State aid rules, the Commission’s Clean Industrial Deal (CID) – published on February 26, 2025, had indicated plans to issue recommendations for EU Member States to adjust their tax systems to support private investment in clean technologies by way of:

• shorter depreciation periods for certain technology assets, allowing businesses to quickly write off costs and benefit from tax incentives that offset high initial investments; and
• the use of tax credits for businesses in strategic sectors for the clean transition, to make it more financially attractive to invest in decarbonized practices.

The CID release further indicated that these tax related measures are meant to be paired with further actions to scale down and phase out fossil fuel subsidies.

For more background information, please refer to Euro Tax Flash Issue 556 and Issue 564.

On July 2, 2025, the European Commission issued recommendations on tax incentives to support the Clean Industrial Deal (CID) and in alignment with the Clean Industrial Deal State aid Framework (CISAF). The recommendations set out common guiding principles for Member States to design cost-effective tax measures that stimulate investment in clean technologies and industrial decarbonization. The recommendations are not binding on Member States but serve as a basis for Member States wishing to design such measures, where feasible in the context of their national tax systems and fiscal policies.

The European Commission suggest the following main instruments to enhance clean investment:

Accelerated depreciation (up to immediate expensing)

Member States are recommended to incentivize the acquisition or lease of clean technology equipment through accelerated depreciation, up to full and immediate expensing. Reference is made to the list of eligible final products defined in Annex II of the CISAF, including certain:

• solar technologies;
• onshore wind and offshore renewable technologies;
• battery and energy storage technologies;
• heat pumps and geothermal energy technologies;
• hydrogen technologies;
• carbon capture and carbon storage technologies;
• electricity grid technologies;
• other renewable energy technologies;
• CO2 transport and utilization technologies;
• nuclear technologies.

Member States are recommended to generally prioritize immediate expensing of eligible costs in the year in which the costs are incurred. Where the latter is not allowed, Member States are recommended to apply the highest depreciation rate allowed under the national taxation rules. Alternatively, Member States are recommended to allow a deduction of at least 30 percent of the eligible costs in the year of acquisition.

In addition, Member States are suggested to grant flexibility in form of ‘discretionary depreciation’ such that taxpayers eligible for accelerated depreciation are allowed to opt for either the standard depreciation rules or accelerated depreciation (based on either the full or only a fraction of the depreciable costs).

Where accelerated depreciation is implemented as a selective measure (i.e., favoring certain undertakings or the production of certain goods), the recommendations note that Member States need to observe the conditions set out in Section 6.3 of the CISAF for the measure to be considered compatible with the internal market. This includes the condition that eligible assets must be new and used primarily for the activities of the company that receives the benefit. Furthermore, eligible assets must remain associated with these activities for at least five years (three years for SMEs) and must be purchased or leased under market conditions from third parties unrelated to the buyer. Note that under the CISAF, immediate expensing as a selective advantage is not allowed for assets depreciable over a period of more than 15 years.

According to the recommendation, Member States could further consider making zero-emission vehicles for corporate fleets eligible for accelerated depreciation, whilst respecting the State aid compatibility conditions set out in Commission Regulation 651/2014.

(Refundable) tax credits

Furthermore, the recommendations suggest the introduction of tax credits to incentivize:

• investment projects that create additional manufacturing capacity for final products, main specific components and critical raw materials – tax credits for additional manufacturing capacity, and
• investments that reduce greenhouse gas emissions or improve the energy efficiency of industrial activities, in particular to companies implementing and disclosing corporate transition plans aligned with the European Climate Law – tax credits for energy efficiency and greenhouse gas emission reduction.

The tax credit corresponding to the eligible costs incurred in a tax year should primarily be deducted from the taxpayer’s corporate tax liability. Where the tax credit is not exhausted in the relevant tax year, it is suggested that Member States allow unused tax credits to be carried forward for four years. The recommendation also notes the option for Member States to allow for tax credits to be offset against other national taxes due (where feasible within the national system).

Member States are further advised to respect the provisions on Qualified Refundable Tax Credits (QRTCs) set out in Council Directive (EU) 2022/2523 (EU Minimum Tax Directive) such that tax credits are refunded to the taxpayer if the credit is not exhausted within four years from when the conditions for granting the credit are met. This means that the amount of the credit is either payable as cash or cash equivalent to the extent that the amount has not been applied already to reduce corporate (and other national) taxes within the four-year carry forward period.

In line with the recommendations related to accelerated depreciation, Member States are required to refer to the design restrictions established by the CISAF, where the tax credit involves State aid:

• With respect to tax credits for additional manufacturing capacity, Member States need to consider the compatibility conditions set out in Section 6.1 of the CISAF. For investment projects that take place outside assisted areas, this includes that condition that the tax credit amount does not exceed EUR 150 million per project and 15 percent of the eligible costs . Where the investment project takes place in certain specific assisted areas, the credit amount should not exceed EUR 200 million or EUR 350 million per project and 20 percent or 35 percent of the eligible costs.
• With respect to tax credits for energy efficiency and greenhouse gas emission reduction, Member States need to consider the compatibility conditions set out in Section 5 of the CISAF. This includes the condition that the tax credit amount does not exceed EUR 200 million per project and 20 percent to 60 percent of the eligible costs, depending on the type of investment.

For both tax credit categories, the CISAF provides that the maximum percentage of eligible costs (aid intensity) can be increased when the projects are undertaken by SMEs.

Enhanced measures

The recommendations encourage Member States to provide for enhanced tax credits for additional manufacturing capacity or more generous accelerated depreciation measures where those contribute to resilience and, at the same, comply with Union law and Union international obligations. In this context, the recommendations refer to Regulation (EU) 2024/1735 establishing a framework of measures for strengthening Europe’s net-zero technology manufacturing ecosystem, Regulation (EU) 2024/795 establishing the Strategic Technologies for Europe Platform and Regulation (EU) 2024/1252 establishing a framework for ensuring a secure and sustainable supply of critical raw materials.

Other measures

In the section ‘general principles’, the recommendations further suggest that Member States also use loss carry-forward rules for clean investments. The recommendations also encourage Member States to pair the introduction of tax incentives that contribute to the objectives of the Clean Industrial Deal with further actions to scale down and phase out fossil fuel subsidies. The recommendations do not include any further design considerations with respect to those additional measures.

Member States are invited to inform the European Commission by December 31, 2025, of the measures introduced or announced to implement the recommendations, as well as of any similar measures already in place and changes to them.

For the purposes of reporting and monitoring the implementation of the recommendations, existing forums (e.g., Expert Group on Structures of Taxation Systems) and reporting tools (e.g., the joint EC-OECD questionnaire on tax reforms) will be considered.

Member States are further recommended to regularly evaluate the effectiveness of the measures they have taken to implement the recommendations and to exchange good practices using an existing EU forum.

The EC recommendation paired with the new CISAF expand options for Member States to grant support for certain investments and objectives that would be considered in line with EU State aid rules and the EU’s climate goals.

Taxpayers operating in the EU may want to monitor closely to what extent individual Member States will choose to make use of the EC recommendations to adopt tax incentives whilst respecting the new EU State aid guidelines. In particular, budgetary constraints may be a limiting factor in many EU countries. Furthermore, several Member States have already publicly expressed concerns with regards to more relaxed State aid rules, including concerns about a subsidy race that would disproportionately benefit EU countries with large budgets. For more details, please refer to E-News Issue 211.

Also, it should be noted that countries will further need to consider internationally agreed principles (e.g., Pillar Two, BEPS Action 5 and the related review by the OECD Forum on Harmful Tax Practices) that set certain additional boundaries for the design of tax incentives.

With respect to Pillar Two, note that discussions are currently ongoing at the level of the OECD Inclusive Framework with the aim of finding a side-by-side solution to US concerns. According to the G7 statement issued on June 28, 2025, one shared principle by the G7 countries is that changes to the Pillar Two treatment of tax incentives should be considered. This may extend the ‘protection’ of the QRTC regime to substance based non-refundable tax credits, subject to certain safeguards.

For more information on the G7 statement, please refer to the report prepared by KPMG International. For more information on how countries may be incentivized to adjust their tax systems and on which legislative actions have already been taken or are being considered locally in light of Pillar Two implementation, please refer to KPMG’s dedicated article “Pillar Two and Tax incentives”.