European Commission proposes VAT reforms to support circular economy

The European Commission has launched public consultations to reform the EU VAT directive, aiming to transform the tax into an environmental policy tool. The initiative is linked to the upcoming Circular Economy Act and seeks to support decarbonization and the circular economy by removing tax barriers that make repairing or reusing goods less profitable than buying new ones.

One significant aspect of the proposed changes involves company vehicles. The Commission is analyzing potential restrictions on VAT deductions for conventional internal combustion engine cars, which could eventually lead to the total removal of deduction rights for such vehicles to encourage the adoption of zero-emission models.