Accountancy Europe’s response to the European Commission’s consultation highlights how the current EU VAT framework is not well adapted to the needs of the circular economy and, in many cases, creates disincentives to reuse, repair, refurbish, remanufacture and donate goods. We believe that VAT rules should support, rather than hinder, sustainable business models and the cross-border movement of circular goods and services.
Key concerns include limitations of the current VAT margin scheme for second-hand goods, the inability to use the One-Stop Shop for such transactions, inconsistent VAT treatment across Member States, and insufficient recognition of modern circular business models such as refurbishment, leasing and upcycling. We also identify distortionary effects arising from the lack of input VAT recovery on certain second-hand acquisitions and from compliance burdens that disproportionately affect SMEs.
To address these issues, we recommend greater harmonisation of definitions, processes and VAT treatments across the EU, alongside exploration of innovative approaches such as notional input VAT deductions and digital traceability solutions linked to initiatives such as the Digital Product Passport.
The current VAT rules can make the destruction of goods more attractive than donation, particularly where VAT is due on a deemed supply of donated goods without any consideration being received. Differences in national rules create barriers to cross-border donations and increase administrative complexity. Harmonised EU rules for such donations, and how they are treated when received by charitable organisations, are therefore recommended.
Finally, the response notes that VAT incentives can encourage the uptake of zero-emission vehicles, but that fragmented and complex national regimes increase compliance costs and distort business decisions.
In summary, we call for EU-level action to ensure VAT neutrality between traditional and circular business models, reduce compliance burdens, support donation and reuse, and remove obstacles to a more integrated and sustainable Single Market.
