ESG insights for Tax & Legal | November 2023
Dear reader,
Welcome to our first edition of ESG Insights for Tax & Legal, keeping you informed of the latest developments in the fast-moving world of ESG!
This ESG Tax & Legal round-up features:
- Our ESG Tax Tracker has been updated
- The EU CBAM took effect on October 1, 2023
- Italian plastics tax postponed again
- Podcast: The role of the tax function towards a circular economy
Enjoy the ESG insights and please contact our ESG team for Tax and Legal, if you have any questions or feedback - we are happy to help you!
Merijn Betjes
Content
1. Our ESG Tax Tracker has been updated
2. The EU CBAM took effect on October 1, 2023
3. Italian plastics tax postponed again
4. Podcast: The role of the tax function towards a circular economy
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1. Our ESG Tax Tracker has been updated
The regulatory landscape is changing rapidly, and governments around the world are increasingly using tax to drive sustainable behavior from organizations, often focusing on the Environmental aspect of ESG. In the Netherlands, the number of environmental taxes has tripled in three years, in particular those in relation to carbon. Currently, governments are also using, and increasing the number of, tax credits, incentives and grants to promote investments in greener alternatives.
Companies must not only remain compliant with regulations, but should also take advantage of the accompanying incentives and grants available to them where there are opportunities to support green investments or investments that promote related social objectives. To assist companies in keeping abreast of this fast-paced evolving landscape, KPMG’s ESG Tax Tracker provides insight into the global ESG and Sustainability landscape for taxes, incentives and grants. The ESG Tax Tracker, which can be accessed for free, is an information repository containing information about environmental taxes and incentives, carbon pricing, and related social taxes and incentives.
We have recently updated our ESG Tax Tracker, which now covers more than 70 countries and leverages off our global network and ESG specialists. Should you wish to obtain information about a jurisdiction that does not appear in the database or discuss any of the items listed in more detail, please contact us.
2. The EU CBAM took effect on October 1, 2023
The European Union has introduced the Carbon Border Adjustment Mechanism (CBAM), in effect an EU carbon border levy. The CBAM took effect on October 1, 2023 and applies to specified imports of goods into the European Union with regard to the following emissions-intensive sectors: electricity, iron and steel, cement, aluminum, fertilizers and hydrogen.
Transitional period
The CBAM took effect on October 1, 2023 with a transitional period that runs until December 31, 2025, during which the obligations of the importer shall be limited to reporting obligations. Each importer, having imported CBAM goods into the customs territory of the EU during a given quarter of a calendar year must, for that quarter, submit a CBAM report containing information on the imported quantity of CBAM goods; the embedded CO2 emissions and any carbon pricing due in the country of origin. The first quarterly report has to be filed by the end of January 31, 2024.
Final period
The CBAM final period will take effect from January 1, 2026, including the financial obligations. Importers will have to register upfront as authorized declarants and start purchasing sufficient emission allowances (CBAM certificates) for imported CO2 emissions. The price of CBAM certificates will be calculated as the average of the closing prices of EU ETS allowances on the auction platform for each calendar week (currently around EUR 80 per ton). From January 1, 2026 only registered declarants will be allowed to import CBAM goods into the EU, and an annual declaration obligation applies. The first annual declaration, covering the 2026 calendar year, must be filed by the end of May 2027. To ensure uniform conditions for the implementation of this regulation, various implementing and delegated acts will be put in place in the coming months.
What steps to take?
- The first step is to review the scope of CBAM. The products covered by CBAM are identified by their customs code (CN code).The codes in scope have been attached for your information. Please review the import flows and internal systems, check the customs code and review the originating country. If desired, we can help companies with our CBAM tool based on an extraction of import data from the national customs authorities.
- Affected companies will then have to prepare for the transitional period reporting obligations:
- The function within the organization responsible for CBAM will have to be determined.
- The (national) customs authorities have to inform importers about the reporting obligation for CBAM goods. To ensure that companies, as importers of CBAM goods, have taken note of the reporting obligation, they must enter a fictional code with the import declaration for these goods as of October 1, 2023.
- Set up the process to collect data on the embedded emissions: who in the supply chain holds this data? Connect with the suppliers and review/apply the calculation methods.
- Create and submit the first CBAM report (end of January 2024).
We are happy to help you become CBAM compliant and we can help with a climate risk strategy, including how to gain strategic foresight and operational value in the decarbonization journey.
Finally, if desired, KPMG can also assist with the CSRD implementation and the new Battery Passports for EV.
3. Italian plastics tax postponed again
The use of environmental taxes to drive the sustainability agenda is on the rise and new regulations and legislation are being rapidly introduced on a global scale. While a plastics tax is not a new concept, it is quickly becoming a legislative point of contention in several regions and countries as governments implement various environmental protection methods to combat climate change and tackle waste and pollution.
To direct behavior in tackling plastic pollution, the European Union (EU) has specific rules and targets in place that apply to certain areas, including single-use plastics, plastic packaging, and microplastics. However, rather than a regional tax, the EU in 2021 introduced an “own resource plastics contribution”, which is a national contribution from each Member State based on the amount of non-recycled plastic packaging waste. This contribution is only between the EU and the Member States and is based on the amount of non-recycled plastic packaging waste produced by each Member State. It is then up to each Member State to decide whether or not they will introduce their own domestic plastics tax.
4. Podcast: the role of the tax function towards a circular economy
The circular economy plays a vital, multi-faceted role in achieving net zero ambitions and sustainability targets, whilst ensuring that we are acting responsibly in our use of resources and generally protecting our environment. Listen to our latest Future of Tax podcast, where Arnoud Walrecht (Global Circular Economy Lead and Sustainability Partner at KPMG in the Netherlands), Merijn Betjes (ESG Tax & Legal Lead at KPMG in the Netherlands) and Nicole de Jager (Senior Manager, Global ESG Tax, KPMG International) explored the role of the tax function in a circular economy, whether the design and practice of tax approaches could help to accelerate the global adoption of a circular economy, and whether resultant changes to supply chains, product design and sustainability are forcing companies to reimagine their businesses.
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