EC’s call for evidence on the future Circular Economy Act

Accountancy Europe is pleased to provide its input to the European Commission’s Call for Evidence on the future Circular Economy Act. We have contributed for years to the EU’s sustainability and taxation agendas, and would like to support the way forward to align Europe’s economy with its sustainability ambitions.

Overall, Accountancy Europe supports the further development of the circular economy that reduces waste, enhances the use of resources and contributes to a competitive economy. Our comments to this Call for Evidence relate, specifically, to the VAT elements of a circular economy. We look forward to contributing to this initiative further.

Already in 2021 Accountancy Europe published a discussion paper on long term tax policy changes for a sustainable future. Moreover, in 2024 Accountancy Europe together with AmCham EU and other associations called for VAT guidance on charitable donations for social and sustainability goals.

Building on these recommendations, Accountancy Europe calls on Member States, together with the Commission, to introduce appropriate tax measures to support the circular economy. In the long-term, our societies should move towards a more sustainable business model, where businesses are not expected to maximise profits irrespective of externalities, but rather work with society to help deal with the pressing issues of the 21st Century. This may reduce tax yields (as profitability would be reduced) but would be offset by the costs saved in having to deal with negative externalities.

We also encourage the Commission to press ahead with its work in making the European VAT system more sustainable, removing aspects that are detrimental to the wider development of the circular economy. These reforms should ensure that the VAT system:

• incentivises the reuse, repair, remanufacturing, and recycling of products, rather than their disposal: this includes encouraging relevant business models and sectors. For example, leasing should not attract punitive VAT compared with outright sales, and the question of VAT on charitable donations should be addressed
• does not penalise circular business models compared with linear ones: this should include considering VAT neutrality for reused materials
• remains administrable and minimises compliance costs, particularly for SMEs: related to this point Accountancy Europe has separately already published tax simplification recommendations, including for reinforcing the VAT system overall, making it less burdensome and ensuring it is fit for the future

We look forward to contributing to relevant, specific Commission initiatives in this space.