Deposit Return Scheme

The UK Plastic Packaging Tax, introduced in April 2022, showcased the UK’s initiative to deploy fiscal policies to serve the wider environmental agenda.   

More specifically to the north of the country, Scotland is now planning to introduce a Deposit on Returned single-use containers Scheme (DRS).   

The scheme will apply to single-use drinks containers. On purchase, a small deposit will be paid (20p), which will then be returned once the empty bottle or can is returned, thus incentivising the need to recycle.   

While seemingly simplistic, there are more complicated fiscal elements which need to be considered as part of the scheme, specifically, the VAT element associated with the scheme. Questions raised include the need to consider whether the extra charge will also need to consider VAT- or whether VAT will only become relevant if the original container was subject to VAT.  

We are expecting further clarification from Her Majesty’s Revenue and Customs (HMRC) in the Spring Budget but as per current timeframes, the scheme is set for an implementation date of August 2023.   

Tungsten will monitor requirements in respect of the scheme and consider our obligations in respect of it.  

Guidance relating to single-use packaging tax

One of the most discerning observations of the past year has been the sharp increase in the deployment of environmental taxes. Through the taxation of elements that contribute to the proliferation of environmental issues that impact society today, the underlying objective of these taxes is ultimately the improvement of ecological affairs. This is a stark example of how countries can exploit fiscal measures to serve wider societal agendas. 

More recently, the United Kingdom and Spain have introduced a Plastic Packaging Tax (PPT). Portugal is the latest country to propose a similar initiative.  

Portugal has recently published guidance relating to a contribution required on single-use packaging made of either plastic or aluminium (or a combination of the two). This is expected to apply on read-to-eat meals and takeaways.  

The tax was initially expected to come into effect on 1 January 2023 but has been delayed until September 2023.  

Tungsten will follow developments in relation to the tax and assess whether we can support the upcoming tax in Portugal.  

Postponement of the Plastic Packaging Tax (PPT)

Italy – postponement of the Plastic Packaging Tax (PPT) (other taxes) 

The draft Budget Law 2023 in Italy has indicated that the Plastic Packaging Tax (PPT) will be postponed from 1 January 2023 to 1 January 2024. 

Tungsten is accommodating the Plastic Packaging Tax in Spain, which commenced on 1 January 2023. We will keep you updated with any developments with the PPT in Italy, if implemented. 

Carbon border adjustment mechanism

Multiple countries internationally have been reviewing their fiscal policies with a view to advancing specific environmental agendas. This has been an evident global trend during 2022 and we expect this to continue in 2023.  

Europe is no exception.  

On 13 December 2022, a provisional agreement to implement an EU Carbon Adjustment Mechanism, which would be effective from 1 October 2023, with plans for a transition period, was proposed. The European Commission will look to spearhead the programme.  

The mechanism would operate by applying a price on emissions relating to a wide range of goods. The underlying aim behind the proposal appears to be to reduce carbon leakage.  

Tungsten will follow any developments in relation to the implementation of the proposed carbon border mechanism.  

Introduction of Plastic Packaging Tax (PPT)

We wanted to remind you that Spain’s Plastic Packaging Tax (PPT) is due to go live on 1 January 2023. 

PPT in Spain is an excise duty imposed on non-reusable plastic packaging. It is levied on the manufacturing, intra—EU acquisition and importation of such packaging.   

PPT in Spain will be charged at 0.45 Euros per kilogram.  

PPT in Spain forms part of the taxable basis- this means that PPT will also be subject to VAT.  

Suppliers are legally obliged to charge the tax, if applicable, to buyers. This means suppliers must communicate the amount of non-recycled plastic, any associated PPT and details of any exemptions, where applicable, to buyers.  

Supplies, along with associated PPT, can be included in invoices- but this information can also be provided via a certificate in place of an invoice.   

We are pleased to confirm that Tungsten has integrated the Plastic Packaging Tax as part of its service offering to our Spanish customers. Both our Web Form Suppliers and Integrated Suppliers can now successfully facilitate the inclusion of PPT in their invoices. We are communicating with our Spanish market in respect of the change.  

Please refer to Law 7/2022 for further information around PPT in Spain.

VAT on foreign digital service providers

The Dominican Republic has proposed an 18% tax for foreign digital service providers, following a consultation in August. This follows an increasingly prevalent global trend, where an increasing number of countries are proposing or implementing a tax on foreign digital service providers.

The Bill will now pass to the Chamber of Representatives for consideration

Introduction of the plastic tax

Multiple countries are enacting legislation with a distinctly ‘green’ agenda. More recently, this year in April 2022 we oversaw the introduction of the plastic tax in the United Kingdom.

Italy is enacting similar legislation with the introduction of the plastic tax on 1st January 2023.

In many respects analogous to its UK counterpart, it aims to incentivise the use of recycled plastic.

The below provides a summary of the main changes:

  • The tax applies to manufactured products for single use (MASCI)
  • All plastic is included with some exceptions (including compostable plastics, recycled plastic and plastic used for medical ends)
  • As in the UK, the tax is not set as a fixed percentage but will be charged at 450 Euros per tonne of plastic
  • The tax must be reported quarterly.

Spain is also enacting similar legislation. Please refer to this month’s Spain compliance updates for further information.

Introduction of the plastic tax

As seen earlier this year in April in the United Kingdom, and more recently in Italy this month, Spain is introducing a new plastic tax, effective from 1st January 2023. This is in line with the recurring trend across Europe to introduce fiscal measures with a distinctly ‘green’ agenda.

To this effect, the Spanish Congress has passed Law 7/2022 dated 8 April 2022. As in the United Kingdom and Italy, the underlying motivation behind this fiscal initiative is to encourage the reduction of non-reusable plastic, as well as promote the recycling of plastic waste.

Key elements of the tax include:

  • The tax applies to non-reusable plastic containers; products made of semi-finished plastic that will be used to create non-reusable packaging and plastic products that are used to close, trade, or display non-reusable containers
  • These components will generally become taxable when delivered to the customer
  • As in the United Kingdom, the tax is not set as a fixed percentage but is expected to be taxed at 0.45 Euros per kg.

Italy is also enacting similar legislation. Please refer to this month’s Italy compliance updates for further information.

Plans for CO2 tax

The Danish government has outlined an ambitious aim of reducing greenhouse gas emissions by 70% by 2030.

To this effect, on 20 April 2022, the Danish government announced some green tax reform measures, including the introduction of a new CO2 tax. This will include a fixed minimum amount per tonne of C02.

The Danish government will implement this across companies in a phased approach, between 2025 and 2030.

Online sales tax for e-commerce

The UK Treasury is considering whether a 1% online sales tax needs to be applied on e-commerce goods and services.

The e-commerce trade has seen a radical increase – fuelled significantly by the Covid-19 pandemic- and it is no coincidence that the government is reviewing its fiscal measures at a time when e-commerce has grown exponentially over the past 2 years.

An open consultation to this effect has been launched from 25 February 2022 until 20 May 2022.

The proposal of the online sales tax aims to rebalance the taxation of the retail sector between online and in-store retail.

Information on the public consultation policy can be found via the following link.

Plastic Tax developments

Our recent compliance updates have shown a sharp increase in countries enacting legislation with a ‘green’ agenda. More specifically, we have seen the introduction of the Plastic Packaging Tax in the United Kingdom from 1 April 2022.

Spain is now promoting a similar incentive. On 9 April 2022, Spain published Law 7/2022 on Waste and Contaminated Soils. This is being introduced to fight climate change and for the preservation of the marine environment.

To achieve this, specifically, Spain is seeking to transpose the following 2 European EU Directives:

  • Directive 2018/851, which aims to modify the Waste Framework Directive
  • Single-Use Plastic Directive 2019/904, which aims to alleviate the environmental impact of certain plastic products.

Aligning with EU regulations is viewed as the most effective way to achieve these goals.

Proposed tax rate reduction for zero-emission technology manufacturers

In the federal budget in Canada, there is a proposal for a temporary reduction in corporate income tax for any entities that qualify as zero-emission technology manufacturers.

This is currently being discussed, and draft legislation to this effect has already been included in a package of draft legislative proposals on 4 February 2022 by the Department of Finance.

New Digital Tax Act

Canada’s department of Finance has released a draft of the Digital Services Tax Act (DSTA). This Act covers a wide array of entities- both residents and non-residents who engage with online users in Canada. The tax is proposed to be set at 3%, and it is expected that this will become payable in 2024, in respect of revenues earned from January 2022.

As this is a draft only, dates are provisional, and we can expect more concrete information in the coming months.

Background to digital tax & proposal of new digital tax

Fiscal measures that countries are deploying also demonstrate how obligations for digital businesses are coming more sharply into focus.

Mexico is planning to enact a 2% Digital Services Tax on commission received by online marketplaces. Funds raised will be spent on improving Mexico City’s infrastructure.

This builds on earlier taxation developments in the digital landscape in Mexico which took place in Mexico in June 2020, where Mexico applied 16% VAT on digital services provided by foreign businesses.

The Mexican Tax Authorities have published a list of non-resident companies that have registered for VAT further to the introduction of Mexico’s new digital VAT obligations in June 2020. There is a wide scope of companies affected, showing the extent of companies affected by the digital VAT obligations.

With digital obligations becoming more prevalent globally, we can expect to see other countries enacting similar measures in 2022.

Introduction of carbon tax

In line with several other countries introducing ‘greener’ tax measures, Austria is implementing a carbon tax from 1 July 2022. This aims to curb greenhouse gas emissions.
Austrians will need to pay 30 Euros per tonne of CO2- this will rise to 55 Euros per tonne in 2025. The incentive behind this measure is to reduce reliance on carbon-intensive forms of transportation and heating, as well as opting for more climate-friendly choices.

Isle of Man Notice on Plastic Packaging Tax (PPT)

The Isle of Man fiscal structure is virtually identical to that of the United Kingdom – and so it isn’t surprising to see that the Isle of Man Treasury have published some guidance on the UK Plastic Packaging Tax (PPT).
This guidance includes a link to the UK HMRC website, which provides detailed information relating to PPT. The link can also be accessed here.