VAT consequences of the ban on single use plastic packaging
VAT consequences of the ban on single use plastic packaging
As from 1 July 2023, entrepreneurs in the Netherlands that supply food or beverages may no longer provide disposable plastic cups and containers free of charge to consumers who carry out food/beverages or have them delivered. A charge will now be imposed for the use of single use plastic items and entrepreneurs must offer consumers reusable options or allow them to bring their own containers. As from 1 January 2024 disposable items used in dining establishments will be banned as well.
The measure is based on the EU Single Use Plastics Directive (SUP Directive), which is part of a multi-pronged ambitious strategy to mitigate the impact of certain plastic products on the environment and eventually remove them from circulation, and to transform how plastic products are designed, produced, used and recycled as part of a shift to a circular economy. The directive became effective on 1 July 2021 and aims to create a harmonised legislative framework for addressing the single-use plastic issues across the EU. EU member states are required to take steps to reduce the consumption of certain single-use plastics for which there is no alternative and achieve a substantial reduction in the consumption of such products by 2026.
The new rules in the Netherlands will have a direct impact on entrepreneurs that circulate single use plastic. This article provides an overview of the SUP measure and its VAT implications.
Measure
General
Free distribution of single use disposable containers, cups and food packaging is prohibited in the Netherlands as from 1 July 2023. Entrepreneurs now must charge consumers a SUP surcharge for SUP products. The rules apply to single use plastic cups and food packaging from which food can be consumed with further preparation. Cups and disposable food packaging made partly of plastic (e.g., a coffee cup with plastic coating) also fall within the scope of the new measure. To help entrepreneurs with their obligations, the Dutch government has set up a website, the ‘Regelhulp wegwergpplastic’ (Help Disposable Plastic), that entrepreneurs can check to ascertain whether the measures apply to their situation.
Guidelines and alternatives
Although entrepreneurs have discretion to set the prices to charge consumers for disposable cups and containers, the government has provided the following guidelines for the amount of the SUP surcharge:
- €0.25 for a single-use plastic drinking cup
- €0.50 for a meal in a moldable container
- €0.05 for pre-packaged fruits, vegetables and nuts
The surcharge amount must be shown separately on the receipt but does not have to be remitted to the government by the entrepreneur.
As noted above, the new law requires that entrepreneurs offer a reusable alternative to consumers, such as a deposit system/guarantee and entrepreneurs may encourage consumers to bring their own containers.
VAT implications
Entrepreneurs that must comply with the single use plastic legislation should adjust their VAT administration accordingly and consider the following:
- For VAT purposes, it must be determined whether the single use plastic surcharge is part of the supply of food and or/drink or whether it constitutes a separate supply. The Dutch tax authorities recently stated that the supply of disposable cups and containers follows the supply of the product in the disposable packaging. As a result, in most cases, the reduced VAT rate will apply. An important factor to note is that the consumer often has no choice and the disposable packaging is not reusable. The tax authorities have not commented on the applicable surcharge rate if disposable packaging is provided separately (i.e., without food or drink), but it is our opinion that the standard VAT rate (21%)would apply in these cases. The VAT rate applicable to the supply of plastic bags will remain 21%.
- ERP systems should be modified so that the surcharge is shown separately on the invoice and the correct VAT rate is charged. The VAT rate of the product contained in the container is decisive.
- Entrepreneurs who choose to provide containers/cups using a deposit system should be aware that they may not charge VAT on the deposit because deposits are not part of the consideration for the product supplied for VAT purposes in the Netherlands. The deposit must be shown separately on the receipt.
More information?
Want to know more about the SUP surcharge and the VAT implications for your business? Contact one of our VAT specialists. We would be happy to help!