Environment – Social – Government («ESG») levies
In the EU, we are currently witnessing significant developments in the ESG (Environmental, Social, Governance) tax landscape. New levies are constantly being introduced, both small and large, which require our attention. These include among other plastic packaging taxes, sugar taxes, and the extended producer responsibility. All of these topics fall within the realm of ESG and are becoming increasingly important.
Carbon Border Adjustment Mechanism (“CBAM”)
On 17 August 2023, the European Commission adopted the Implementing Regulation for the Carbon Border Adjustment Mechanism (CBAM). The approved Implementing Regulation and accompanying guidance:
- Confirms the reporting obligations for the CBAM transitional period, which commences on 1 October 2023. Furthermore, it confirms that the CBAM reporting requirements and methodology will provide some flexibility when it comes to the values used to calculate embedded emissions on imports during the transitional phase.
- Provides further guidance on the calculation of embedded emissions. Critically, the use of ‘default values’ will not be limited for the first three quarterly CBAM reports (i.e. until 31 July 2024). After this point, default values may only be used for up to 20% of embedded emissions for complex goods
The CBAM was announced as part of the European Commission’s ‘Fit for 55’ package. This initiative aims to reduce net greenhouse gas emissions by at least 55% by 2030, compared to 1990 levels. The CBAM is designed to contribute to this objective and prevent from a carbon leakage. Practically speaking, the CBAM will be a tax on the importation of carbon-intensive products from outside the European Union. In summary, the CBAM will likely affect businesses in three ways:
- It will increase the risk of non-compliance if affected businesses aren’t familiar with the, admittedly rather complex, process.
- It will increase the time (and associated costs) required to collect and to process data from suppliers.
- It will increase costs through the additional carbon price to be paid – as of 2026.
Consequently, if you are active in the cement, iron, steel, aluminium, fertiliser, electricity or hydrogen industries (or in the value chain of these products), you should begin to assess how CBAM will impact you. Whilst you may not have a direct reporting obligation, you should expect to receive information requests from those impacted.
EU proposal VAT in the Digital Age (“ViDA”)
On 8 December 2022 the European (EU) Commission released its “VAT in the Digital Age (ViDA)” package, which is a set of proposals for new measures aiming to tackle the challenges of the digitization of the economy and to create a more resilient system against VAT fraud. The proposal deals with following main topics:
- Digital Reporting Requirements (“DRR”): to standardize the information required for electronic reporting and introducing mandatory e-invoicing for cross-border transactions.
Planned effective dates are 1 Jan 2024 and 1 Jan 2028.
- Platform economy VAT rules update: to address the challenges of equal treatment, clarifying the place of supply rules and enhancing the role of the platforms in the collection of VAT when they facilitate the supply of short-term accommodation rental or passenger transport services, but also for the supply of goods in almost all cases.
Planned effective date 1 Jan 2025
- Measures to avoiding multiple VAT registrations: by introducing Single VAT Registration as well as expanding the existing One-Stop Shops (OSS) and Import One-Stop Shop (IOSS) schemes (and other smaller changes).
Planned effective date 1 Jan 2025
The ViDA initiative is an ambitious package that will result in significant changes and will have a major impact on systems and processes for a large number of businesses. However the proposals are yet to go through the EU’s legislative process and will require the unanimous approval of all EU Member States as well as implementation in national legislations. Therefore, it remains to be seen whether the implementation of all proposed measures will be possible within the planned timeframe.
Pharma VAT Recovery for Rebates granted under KVV Art. 71a: A Smart Business Move for You
Pharmaceutical companies selling drugs listed on the Speciality List (SL) in Switzerland have the opportunity to gain a valuable VAT benefit that could significantly enhance their financial standing. The reason for this opportunity is a recent shift in the approach of health and/or disability insurers regarding the rebates required under Swiss law (KVV Article 71a).
Previously, these rebates were usually issued with VAT on the credit notes, but recently, many insurers have requested the credit notes to be issued without VAT, to avoid any VAT risk on their side.
This change implies that pharmaceutical companies may have inadvertently VAT on these rebates in the past that can be claimed back. The good news is that such overpaid VAT amounts can be reclaimed from the Swiss VAT authorities, provided that a VAT ruling confirming this option is in place. We've been instrumental in assisting numerous pharmaceutical clients in securing these rulings, enabling them to recoup substantial VAT sums spanning the past five years.