ESG insights for Tax & Legal | September 2024
Welcome to our 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:
2. CBAM: the route towards actual emissions data
3. Spotlight: Dutch tax incentives
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
1. Budget day news
On September 17, 2024 it was Budget Day in the Netherlands. Budget Day is held annually on the third Tuesday in September and during Budget Day the Dutcgh government announces its plans for the coming year. First of all related to ESG, the government indicates that it will continue to adhere to the previously set climate goals, so that we will produce cleaner and become less dependent on energy from other countries. Green or clean growth is an important condition for future prosperity for the government.
End of netting scheme for low-volume users (2027)
In the Coalition Agreement it was agreed to end the netting scheme as of January 1, 2027. Supply self-generated renewable energy to the national grid is placing a strain on the energy system. Ending the netting scheme will act as a financial incentive for consumers to use self-generated renewable electricity efficiently and at the same time to use this electricity as much as possible themselves rather than supplying back into the national grid. The end of the netting scheme means the re-supply to the grid will no longer be netted against the amount of electricity supplied, thus ending the existing tax benefit.
Changes to energy tax
- In energy tax, hydrogen is currently taxed the same as natural gas. As a result, there is no fiscal incentive to replace natural gas with hydrogen. It is proposed that, with effect from 1 January 2026, the consumption of hydrogen in energy tax will be taxed at a separate rate that is lower than the rate for natural gas.
- The rates for natural gas for small consumers will be reduced, with the aim of reducing the energy bill for households. On the other hand, the rates for large consumers will increase further.
Other adjustments
- Some adjustments with regard to the CO2 levy for the industry and the CO2 levy for the greenhouse horticulture. Regarding the levy for the industry, waste incineration plants will receive less exemption rights and for the greenhouse horticulture the government will further elaborate the possibilities next year to exempt green gas from the CO2 levy.
- The waste tax will be clarified. Earlier this year, a court ruled that the CO2 released during the incineration of waste and discharged via the chimney can be deducted from the waste tax. Despite the fact that an appeal procedure is currently still pending, the government wants to put a stop to this immediately and clarifies that all substances, including CO2, that are released via the chimney after combustion are not eligible for deduction.
- Some exemptions within the coal tax will be abolished as of 2027.
And finally, based on the Government Programme:
- A flight tax based differentiated on distance will be introduced in 2027, thus adjusting the current flight tax.
- A plastic levy will be introduced in 2028, following countries such as Spain, England, Germany and Italy.
- The Dutch government will focus on further phasing out fossil subsidies aimed at energy supply in a European context. This mainly concerns phasing out tax exemptions and reduced tax rates.
2. CBAM: the route towards actual emissions data
The European Union’s (EU) Carbon Border Adjustment Mechanism (CBAM) came into effect on 1 October 2023, beginning with a transitional period that runs until 31 December 2025, during which importers’ obligations are limited to quarterly reporting obligations only, without paying any financial adjustment. The purpose of the transitional period is to collect data that will help fine-tune the shape of the CBAM for its definitive phase from 1 January 2026. 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 direct and indirect emissions embedded contained therein, as well as the carbon price due in the country of production.
Emissions measurement
Although the reporting and financial obligations lie with EU-based importers, producers outside the EU are required to provide product-specific information on the actual direct and indirect embedded emissions of the CBAM goods. From the Q3 2024 reporting (to be filed by the end of October 2024) default values may no longer be used to measure emissions, and from 1 January 2025, the only acceptable methodology for measuring emissions is the EU methodology, using either a calculation-based approach or a measurement-based approach. As such, non-EU companies will have to implement carbon accounting to track the actual embedded emissions associated with these products, as this product-specific information must be provided to CBAM declarants on a quarterly basis during the transitional period (during the definitive period per 2026, reporting obligations are on an annual basis only).
Emissions data
For transitional period CBAM reporting purposes, the following mandatory emissions data must be provided by suppliers:
- The direct and indirect embedded emissions either at installation level or production process level, including the applicable reporting methodology used to measure the emissions,
- The production method,
- The values of applicable specific parameters required for determining the embedded emissions (such as scrap usage; mass percentages or ratios; main reducing agents; purity; etc., depending on the CBAM product), and
- The specific embedded direct and indirect emissions of any relevant precursors if used in the production process.
To determine the total embedded direct and indirect emissions per tonne of CBAM good, installation boundaries, production processes and activity levels must all be defined. All inputs, outputs and corresponding emissions in an installation should be attributed to a production process, unless they relate to any non-CBAM good.
Collaboration with suppliers
The European Commission stresses the importance of collaboration between third-country producers and reporting declarants to ensure accurate reporting of embedded emissions in CBAM goods produced outside the EU, stating that “Reporting declarants must undertake all possible efforts to obtain actual emission data from their supplier(s) or producer(s) of CBAM goods. Where declarants eventually fail to get data on actual emissions, they should prove that they have undertaken all reasonable efforts…and include supporting documents attesting unsuccessful efforts and steps taken to obtain data from suppliers and/or producers”.
One of the most significant challenges faced by CBAM declarants to date revolves around the collation of information and obtaining detailed emissions data from suppliers. Supplier data on emissions is often limited and few companies know in what country the actual emissions relating to the production of their goods were generated – making emissions traceability difficult. This is compounded when suppliers may not be willing to share, or themselves do not have access to, information on the actual carbon footprint of the imported products.
Supplier communication and collaboration is absolutely vital for companies to report on actual embedded emissions. Businesses should, therefore, engage with suppliers to understand the availability of their emissions data. Additionally, they might consider revising existing supplier contracts or implementing new ones that incorporate CBAM clauses, such as an obligation to provide CBAM information.
Costs of non-compliance
Reporting declarants are responsible for the completeness and accuracy of the CBAM reports and face penalties for non-compliance or submission of incorrect (contains incorrect information incorrect or does not comply with the CBAM rules) or incomplete (does not contain all the required/ mandatory information) reports. During the transitional period, penalties will range between EUR 10 and EUR 50 for each tonne of unreported embedded emissions (based on default values), increasing in accordance with the European index of consumer prices. Higher penalties will be applied when more than two incomplete or incorrect reports have been submitted in a row or the duration of the failure to report exceeds 6 months.
It is important to closely follow the instructions from the authorities, to avoid costs of non-compliance. According to the Dutch National Competent Authority’s (Nederlandse Emissie autoriteit (NEa)) transitional period CBAM enforcement policy, the NEa may choose to only inform the CBAM declarant about any shortcomings and not to take any further action; to limit the correction procedure to a warning; or to initiate a correction procedure, depending on the extent of the embedded emissions of the CBAM goods and the required level of effort by the CBAM declarant. A fine will be imposed on CBAM declarants who fail to make sufficient effort to submit or correct a CBAM report once a correction procedure has been initiated.
We are happy to help you become CBAM compliant.
3. Spotlight: Dutch tax incentives
The Netherlands offers several tax incentives to encourage businesses to invest in sustainable and environmentally friendly technologies. These tax schemes aim to foster a greener, more sustainable economy by reducing the financial burden of investing in eco-friendly technologies. Below we have highlighted three of these tax incentives.
The energy investment allowance (EIA)
A taxpayer investing in energy-efficient assets and renewable energy, such as energy-efficient technologies, sustainable energy, or CO2 reduction, might benefit from an additional personal or corporate income tax deduction of 40% of the investment costs when investing in certain new environmental business assets. The deduction is granted over and above ordinary depreciation. To qualify for this 40% deduction, the taxpayer must meet certain conditions, for example:
- The investment is a previously unused asset included on the Energy List for the relevant tax year.
- The investment is reported on time (within 3 months after the investment obligation) to the Netherland Enterprise Agency (RVO).
The environmental investment allowance (MIA)
The MIA scheme also enables entrepreneurs to reduce their taxable income through an investment allowance. A taxpayer investing in environmentally friendly assets, such as sustainable buildings, resource use, emission reduction, or a circular economy, can benefit from an additional personal or corporate income tax deduction over and above ordinary depreciation. The additional deduction rate available under the MIA varies depending on the type of asset invested in, from 27%, 36%, or 45%. Certain conditions, for example:
- The investment is a previously unused asset included on the Environmental List for the relevant tax year.
- The investment is reported on time (within 3 months after the investment obligation) to the Netherland Enterprise Agency (RVO).
The free depreciation of environmental investments (VAMIL)
Under the VAMIL you may freely depreciate 75% of the qualifying depreciation potential of certain environmentally friendly operating assets you have invested in. This allows you to reduce your taxable profit at your convenience. You can reduce taxes in a high-profit year or defer them for future years, creating liquidity and interest advantages. The remaining 25% must be depreciated in the usual manner. To qualify, the taxpayer must meet also certain similar conditions.
We would be pleased to provide any assistance necessary to ensure that all available tax deductions are taken advantage of.
