Sustainable taxes for a circular economy

"Recognizing public concern about climate change, many companies and governments are today committed to meeting ambitious net zero emissions or circular economy targets"

After a few years of exponential growth, the environmental, social and governance movement (ESG) has reached his majority. Recognizing public concern about climate change, many companies - which have generalized the creation of the Chief Sustainability Officer– and governments -which have elevated, both in the EU and in Spain, the head of their respective commissions or ministries, as a relevant gesture, to the rank of Vice-Presidency- are today committed to meeting ambitious objectives of zero emissions net or of circular economy.

This change is due, in part, to the evolution of the priorities of those responsible for politics - whose most tangible legal reality is seen in the largest legislative package ever launched from the EU, such as the fit for 55– and the business need to face the effects of new economic and geopolitical challenges -such as the Russian invasion of Ukraine or the growing tensions between the United States and China-.

With the aim of reducing the adverse impacts of waste generation and ultimately protecting the environment and human health and transitioning to a circular and low-carbon economy with innovative and sustainable business models and materials, Spain has approved the Law 7/2022, on Waste and Contaminated Soils, which establishes a integrated regulatory framework, by incorporating Directives (EU) 2019/90 and 2018/851 into the Spanish legal system.

In a novel way, the Law introduces two economic instruments: the tax on non-reusable plastic packaging and tax on the deposit of waste in landfills, incineration and co-incineration, which entered into force on January 1, and which have been designed with the aim of improving the application of the principle of waste hierarchy. Having said the above, we must insist that in no caso we are faced with harmonized taxes, despite the fact that with respect to plastic there is an own resource that Spain must pay annually to the EU based on our non-recycled plastic packaging -as is the result of EU Council Decision 2020/2053-. Or that the second is a figure that not only exists in the majority of Member States, but also already existed in a dozen Autonomous Communities. Of course, in both cases, and in accordance with the principle of subsidiarity, the Directives reviewed give freedom to the States to adopt the measures that they consider most appropriate to achieve the objectives that they establish.

The new plastic tax makes Spain the first country in the EU to apply it, despite -paradoxically- its high percentages of recycling use and being the only one that has not yet reached pre-covid GDP.

The tax is levied on the manufacture, import or intra-community acquisition of non-reusable plastic containers as long as they are not recycled, whether they are used for sale, used as buses or for transport. And it does so at a rate of 0,45 euros per kilogram of non-recycled plastic, a rate that coincides with the one that Italy will have from 2024 and somewhat higher than the 0,2 pounds sterling that does exist in the United Kingdom. We find ourselves, then, before a tax to which containers, both empty and when they are presented containing, protecting, handling, distributing and presenting merchandise, are mainly subject. Also those plastics that allow to close, commercialize or present the containers, as it would be the caso caps, packing tapes or protective film. But, in addition, and this point is important, semi-finished products will be subject, such as the caso of preforms, thermoplastic sheets or plastic coils that are used to obtain the containers.

When determining the status of taxpayer, the regulation has chosen to associate said position with the company that produces the container, while its client -who is the one who packs with these boxes or plastic cases- will have to bear it to be able to move it economically on the invoice or certification issued in the following phases of distribution of your packaged products. In addition, for operators who export part of their stocks, the Law provides that they can obtain a refund of the tax paid in Spain, accompanying the request for sufficient supporting documentation.

In short, a new and important management cost for companies, which will have to trace the amount of plastic that accompanies their purchases and sales at all times, with the challenge of being able to manage the transfer of the price to customers or the return of the tax in cases of export.

Regarding state tax on waste, is created in order to change their management, so as to reduce the use of these less favorable treatment operations according to the principle of waste hierarchy; and to advance in fiscal harmonization, since with it the own taxes that a dozen CCAAs had to date in this regard are rendered null and void. The aim is to fight against what is known as "waste tourism" caused by the different taxation in our autonomies.

The tax is levied on the delivery of waste for disposal (or energy recovery) in authorized landfills or in authorized incineration or co-incineration facilities, at any caso, whether they are publicly or privately owned. However, certain exemptions are provided, among which the delivery of waste resulting from treatment operations other than the rejection of municipal waste, from facilities that carry out recovery operations that are not intermediate treatment operations, stands out.

The tax results from applying to the weight of the deposited waste a complex system of tax rates that depends on three types of circumstances: the type of treatment facility -non-hazardous, hazardous, inert waste landfills, incineration facilities D10, R01 and others , or coincineration-; the type of waste -municipal, municipal waste rejections or others-; and whether or not the waste is subjected to prior treatment or other operations.

Finally, and given that the status of substitute for the taxpayer falls on the owner of the landfill or facility, who must pass the tax on to the person or entity that deposits waste -acting as a taxpayer-, the Law expressly establishes that for the casos in which local entities provide the waste collection service must update their tax ordinances to pass on to the users of the service the tax that they must pay to the owners of the landfill. For this purpose, local entities must establish before 2025 a property tax or benefit, specific, differentiated and non-deficit, which allows for the implementation of pay-per-generation systems and which reflects the real cost of waste collection, transport and treatment operations, as well as the income derived from the application of extended producer responsibility.

In conclusion, a step forward in the legitimate environmental purpose pursued, but which is done at the cost of a huge indirect tax burden for companies by requiring new logistics, registration, billing, accounting or self-assessment obligations, which require a landing for nothing residual.

Alberto Garcia Valera

Partner responsible for Tax Policy at EY Abogados. Tax Inspector of the State on surplus, he has held different positions in the Administration such as Minister of Finance of Andalusia, General Director of Taxes of the Ministry of Finance or special delegate of the AEAT in Andalusia.

Article originally published in the Blog Fide in the withfideinitial

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