Sustainability and Taxes: ESG and plastic levy – levy, charge or (indirect) tax burden as a sustainability indicator?

published on 19 July 2023 | Reading time approx. 4 minutes

ESG stands for the integration of environmental, social and governance-related criteria. This word bundle already expresses the diversity in which the topic of sustainability, in particular, is to be understood in the present time and requires attention.

With the changing social awareness of values, environmental aspects, political and legal topics on climate protection and sustainability are gaining in importance, but also issues of tax law and / or fiscal law, which, on the one hand, provide subsidies and tax concessions for, for example, renewable energies or, in general, climate-friendly and sustainable energy. On the other hand, they provide for deliberate fiscal or tax burdens on plastics, for example, in order to promote innovation, to do without or reduce (single-used) plastics and plastic as much as possible, in order to further combine sustainability and economy. The latter concerns the currently more and more discussed hot topic so-called “EU plastic tax”.

EU plastic tax – always using the word “tax” – is a measure of the EU Green Deal. The latest developments in Germany qualify the new levy, which is determined by means of a report, after corresponding assessment not as tax, but it is nevertheless a burden for certain entrepreneurs within the framework of the so-called Single-Use Plastics Fund Act. In other EU Member States, where the implementation is already made or planned for a tax law perspective it will be qualified as a tax for certain entrepreneurs.

Background

In order to meet the climate targets set under the Paris Agreement, the Euratom Decision of 14 December 2020 provided for a “new plastic tax” to be paid by EU Member States on non-recycled plastic / plastic packaging waste. The relevant parameters of the plastic tax can be set individually by EU Member States.

It is the intention of the European Commission to create another instrument to stop climate change, fight biodiversity loss and minimise pollution by introducing a so-called plastic tax. It is also intended to reduce the debt from the Covid 19 pandemic in the long term.

Since 1 January 2021, the European Union (EU) already imposes a plastic / plastic levy on non-recycled plastic packaging waste. This is made up of a share of the revenue from a Member State contribution calculated on the basis of the weight of non-recycled plastic packaging waste at a rate of EUR 0.80 per kilogram.

However, this is only one method of calculating Member States' contributions to the EU budget; this type of EU revenue does not constitute a tax. It does not imply an obligation to introduce a national plastic tax as well. EU Member States are free to decide how to implement this obligation. In 2021, the vast majority of EU Member States have decided to pay their contribution directly from their national budgets.

In some countries, however, a national plastic levy or plastic tax with a burdening effect on entrepreneurs has already been introduced, so that there may already be a need for action, especially for companies with tax responsibilities for subsidiaries abroad, e.g.

Identification of business processes and materials, including, if necessary, data collection from suppliers to learn about their products;
Data quality in the company's own master data or in logistics for reporting any plastic tax;
Adjustment of ERP systems and pricing as well as, if applicable, additional requirements for invoicing, of course also for reporting obligations themselves and the possible administrative requirements for the fulfilment of reporting and tax obligations.

A short status quo report of selected countries on the legal situation and the implementation of a possible national plastic tax can be found here: EU plastic tax as a fiscal measure of the EU Green Deal - A new (indirect) tax or levy?

New plastic levy in Germany

Until now, Germany has lacked an implementation or new levy in the form of a “plastic tax” or levy on entrepreneurs or consumers, so that the contribution made to the EU would not only be paid from the state budget. In 2021, Germany transferred about EUR 1.3 billion from the state budget to the EU as part of the plastics levy. A levy of the plastic levy on producers / consumers was described in the coalition agreement of the current German Federal Government in December 2021 (“The plastic levy already existing within the framework of the EU will be passed on to producers and distributors as in other European countries.”), but without any indication of the exact form and concrete timetable for implementation.

On 11 May 2023 (published in the Federal Law Gazette on 15 May 2023), the German Federal Government has now passed a Single-Use Plastics Fund Act (so-called Einwegkunststofffondsgesetz – EWKFondsG) to implement a national single-use plastics levy as a special charge. It is intended to avoid and reduce the impact of single-use plastic products on the environment, in particular the marine environment, and human health, to encourage entrepreneurs and consumers to be more conscious and sustainable in their use of products made of single-use plastic, at best even to switch to more sustainable products, as well as to promote innovative and sustainable business models, products and recyclable material.

What does the new German act content?

It regulates the product responsibility of manufacturers of single-use plastic products in the sense of extended producer responsibility (EPR).

According to the present EPR, manufacturers, i.e. first distributors of single-use plastic products and products containing plastics, will in future be obliged to pay a certain amount – depending on the quantity (type and mass) of single-use plastic products first made available or sold on the market – into a state single-use plastic fund administered by the Federal Environment Agency.

The levies collected in the single-use plastic fund are used to cover the costs incurred for the services provided by the authorities and the other legal entities entitled to claim.

The Act covers in particular

Food containers, such as boxes with or without lids, for food intended for immediate consumption;
Bags and film packaging made of flexible material;
Beverage containers with a capacity of up to three litres;
Beverage cups;
Lightweight plastic carrier bags;
Wet wipes;
Balloons (for retail) and tobacco products with filters as well as filters themselves, etc.

Manufacturers of these products must register with the Federal Environment Agency before starting their activities from 1 January 2024. The Federal Environment Agency will set up an information technology system for this purpose and open access on its website. Producers who have already commenced their activities before 1 January 2024 have to register by 31 December 2024 at the latest.

The Act defines a manufacturer as any producer, filler, seller or importer established in Germany who makes disposable plastic products available on the market for the first time on a commercial basis. Distance selling is also covered. Persons / companies not resident or established in Germany who commercially sell single-use plastic products directly to private households or other users by means of distance communication in Germany are also covered.

Notes for Practice

From 1 January 2025, these producers of single-use plastic products will have to pay an annual special levy, which will be determined by a levy notice. We can assist you in reviewing such levy notices.

In order to avoid penalties, the affected party should already be analysed now in order to be able to fulfil the related obligations in due time.

This results in the following obligations for trading companies:

For first-time distributors of single-use plastic products (see Annex 1 of Single-Use Plastics Fund Act), there may be an obligation to register with the Federal Environment Agency, which is accompanied by an annual reporting obligation by 15 May of a year for the previous calendar year. Linked to this is the obligation to pay the single-use plastic levy to the Federal Environment Agency. There are foreseen certain transitional provisions.
Manufacturers (= initial distributors) based abroad are required to appoint a so-called authorised representative.
The notification requires with reference to the Packaging Act verification and confirmation by a registered expert or by a registered auditor, sworn accountant or certified tax advisor.

From 1 January 2024, a registered expert within the meaning of the Packaging Act or an auditor, tax advisor or sworn accountant shall verify the annual quantity reports of manufacturers on single-use plastic products they place on the market. The reports must be submitted to the Federal Environment Agency.

The confirmation shall be provided with a qualified electronic signature pursuant to section 2 of the Signature Act and shall be transmitted electronically by the manufacturer to the Federal Environment Agency together with the data notification and the test report.

This is similar to the audit pursuant to Section 11 German Packaging Act. Pursuant to the new Single-Use Plastics Fund Act, the Federal Environment Agency must – as foreseen in Packaging Act – develop so-called audit guidelines to be observed by the reviewer. The explanatory memorandum to the Act assumes that the content of these can be based on the test guidelines for Section 11 of the German Packaging Act.

Section 10 para. 4 of the new Act contains a threshold value of 50 kilograms; below this quantity of single-use plastic products, testing is unnecessary. This would mean that even the smallest distributors would have to be audited. It remains to be seen whether adjustments will be made here in the course of the legislative process and the further implementation in the reporting portal then envisaged.

As lawyers, auditors and tax advisors, we are currently working interdisciplinary on the topic of EU plastic levy in Germany and abroad, according to which our lawyers for example are concerned about the check of basic reporting obligations. In Germany, for example, these are those that are already and still have to be reported under the Packaging Act (in German Verpackungsgesetz – VerPackG) via the German packaging register LUCID and then additionally now via the newly planned reporting system of the Federal Ministry of Economics. As auditors or tax consultants, for example, they can take over the audits of the reports that an entrepreneur who is obliged to report must submit himself, after receiving the appropriate certification.