Plastic packaging taxes in the UK, EU and beyond: How will they affect your organisation?

As part of the European Union’s Green Deal and Covid recovery package, in 2021 the EU also introduced a plastic tax. The EU’s “tax” is actually a contribution rather than a tax and is levied on EU member states in proportion to the non-recycled plastic packaging waste produced by each state. The tax is one of several initiatives the European Commission has outlined as part of its plastics strategy to transform the way products are designed, produced, used and recycled.

Organisations such as the OECD believe that plastic packaging taxes can prevent single-use plastic waste and strengthen markets for recycled plastics. Leading companies are also stepping up to respond to the global plastic crisis. For example, Coca-Cola's British business responded to EU plastics directives by attaching caps to bottles to improve recycling of the full package and reduce the problem of caps littering landfills. The company plans to make its packaging 100 percent recyclable by 2025, and for the packaging to be made out of at least 50 percent recycled material by 2030.

How the UK plastic packaging tax works

The UK’s plastic packaging tax, or PPT, applies at a rate of £200 per tonne for companies that manufacture or import filled or unfilled plastic packaging greater than 10 tonnes per year. Some important PPT details include:

• PPT defines “plastic packaging” as packaging that is predominantly plastic by weight.
• PPT applies to packaging on goods themselves, not only to the manufacturers of plastic packaging.
• Organisations that meet the 30-percent recycled plastic content threshold must register for PPT, even if they do not need to pay any PPT.
• PPT will be due from other businesses in the supply chain that are secondarily liable; these related businesses must also conduct an internal review of their packaging strategies.

The UK anticipates that the tax will affect approximately 20,000 manufacturers and importers of plastic packaging in a wide range of industries, including those involved in packaging and industrial manufacturing of consumer goods, as well as food and beverage producers, and the pharmaceutical and chemical sectors.

The EU’s plastic tax

The EU’s plastic packaging levy will rely on each member state to pay a contribution from its own budget, regardless of whether it has a national system established to collect the tax. Member states that design their own legislation to collect the tax must determine their own definitions of taxed products and mechanisms for collection. Contributions are forecasted to generate approximately 6 to 8 billion euros annually.

Multinational businesses operating in the EU will face compliance challenges. Each EU member state is designing and implementing its own plastic packaging tax variations, resulting in a maze of rules. Here are some examples by country.

Italy

With a planned January 2023 introduction, Italy is due to levy a plastic packaging tax at a rate of 450 euros per tonne on virgin plastic used in the consumption or manufacture of single-use items produced for the purpose of containing, protecting, or delivering goods or food products. The tax will be collected at various levels including production, sale, purchase and importation.

Spain, Portugal and others

While there are proposed exemptions for certain medical products, Spain is planning to implement a plastic tax like Italy’s, at 450 euros per tonne beginning in January 2023. Spain, however, plans to levy an excise tax (that is, a tax imposed at point of manufacture rather than sale) on non-reusable, non-recycled plastic packaging, including packaging designed for containment, protection, distribution and presentation of goods. The tax is broad in scope, covering empty packaging material itself, as well as packaged products (applicable to primary, secondary and tertiary packaging). Taxable persons include those who perform intra-EU acquisitions into Spain and importers of record into Spain.

Both Spain and Italy are still determining which parties will be responsible for the tax, and at which point in the supply chain lifecycle the tax will apply.

Starting in July 2022, Portugal will begin collecting a contribution of .30 euro per single-use plastic or aluminum packaging for ready-made meals. Poland has published draft legislation regarding plastic packaging for consumer use, with a planned start date of January 2023. Other EU member states, such as Sweden, France and Belgium, have announced plans to follow suit, with details to emerge.

Efforts outside the EU are also underway. Those are considered increasingly important, since plastic use has increased substantially during the pandemic. In 2021, the US Congress proposed a national excise tax to levy a fee on virgin plastic used to make single-use plastics. Experts also see opportunities in Southeast Asia, where plastic waste has dramatically accumulated since China stopped importing it for recycling in 2017.

What does the plastic tax mean for my business?

Most organisations, even most businesses, agree that stemming the tide of plastic waste is critical for the long-term health of the planet and the global economy. That said, it is unclear precisely how new and proposed plastic taxes will affect multinational organisations’ tax positions and supply chains.

For now, organisations must keep abreast of the changes and put themselves in favourable positions to comply. Compliance is particularly critical, not only to avoid fines but to avoid negative publicity amid widespread calls for corporate transparency and sustainability.

As with every legislative change, it is important to research the new and proposed plastic taxes to understand how they will affect your internal groups and third-party business and supply chains. This can be a complex process, as the various country-specific rules are evolving and assessing supply chains is complicated. Most organisations will lower their risks substantially by using third-party tax experts to help with this high-level impact assessment.

Following the assessment, you will need to review and collect any additional data deemed necessary to reasonably ensure compliance. It’s important to note that you may need to take actions to account for increased tax costs, pricing adjustments, outdated contract assumptions and language, and potential supply chain changes and documentation.