New Packaging Tax Becomes Effective in the Netherlands on ...

<strong>Tax</strong> Alert
November 2007
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<strong>New</strong> ‘<strong>Packag<strong>in</strong>g</strong> <strong>Tax</strong>’ <strong>Becomes</strong> <strong>Effective</strong>
<strong>in</strong> <strong>the</strong> Ne<strong>the</strong>rlands on January 1, 2008
Introduction
Environmental taxes are becom<strong>in</strong>g an important part of <strong>the</strong> tax regime <strong>in</strong> <strong>the</strong>
European Union (EU). Unfortunately, <strong>the</strong> Member States have not implemented an
EU-wide environmental tax system, employ<strong>in</strong>g <strong>the</strong>ir own national tax codes <strong>in</strong>stead.
The Ne<strong>the</strong>rlands will <strong>in</strong>troduce a “<strong>Packag<strong>in</strong>g</strong> <strong>Tax</strong>,” effective January 1, 2008, that
aims to tax packag<strong>in</strong>g materials, such as glass, plastics, wood and cardboard. Aside
from <strong>the</strong> presumed positive effect <strong>the</strong> measure will have on <strong>the</strong> environment, <strong>the</strong>
expected yield for <strong>the</strong> treasury — a m<strong>in</strong>imum of 250 million Euros — is also
important. And <strong>in</strong> <strong>the</strong> years ahead, <strong>the</strong> revenues from <strong>the</strong> <strong>Packag<strong>in</strong>g</strong> <strong>Tax</strong> are
expected to <strong>in</strong>crease.
At this time, <strong>the</strong> proposal for <strong>the</strong> <strong>Packag<strong>in</strong>g</strong> <strong>Tax</strong> is still be<strong>in</strong>g discussed <strong>in</strong> <strong>the</strong> Dutch
Parliament — <strong>the</strong>refore, <strong>the</strong> legal text may be subject to change, and precise
implementation regulations are still unknown at this time. However, based on
official publications and <strong>the</strong> parliamentary proceed<strong>in</strong>gs, most of <strong>the</strong> key aspects of
<strong>the</strong> tax are known.
As <strong>the</strong> implementation of <strong>the</strong> <strong>Packag<strong>in</strong>g</strong> <strong>Tax</strong> approaches, it is necessary for
companies do<strong>in</strong>g bus<strong>in</strong>ess <strong>in</strong> <strong>the</strong> Ne<strong>the</strong>rlands to prepare for <strong>the</strong> taxation and
related compliance obligations.
Who is liable to pay?
The tax will be levied on "manufacturers" — entrepreneurs who, after production or
import, supply packaged products <strong>in</strong> <strong>the</strong> Dutch market. The def<strong>in</strong>ition of
manufacturer under <strong>the</strong> law is very broad, and <strong>in</strong>cludes not only <strong>the</strong> manufacturer,
but also <strong>the</strong> importer, <strong>the</strong> wholesaler and <strong>the</strong> retailer. It goes without say<strong>in</strong>g that
companies subject to <strong>the</strong> tax will attempt to pass it on to <strong>the</strong>ir customers and thus,
eventually, <strong>the</strong> Dutch consumer will be faced with more expensive products.
In addition to <strong>the</strong> supply by a manufacturer, <strong>the</strong> removal of packag<strong>in</strong>g materials
after <strong>the</strong>y are imported <strong>in</strong>to <strong>the</strong> Ne<strong>the</strong>rlands but prior to <strong>the</strong> first delivery
with<strong>in</strong> <strong>the</strong> country is also taxable under this measure. For example, if boxes of
shampoo are imported <strong>in</strong>to <strong>the</strong> Ne<strong>the</strong>rlands, and <strong>the</strong> boxes are removed before
<strong>the</strong> first delivery of <strong>the</strong> shampoo to a customer, <strong>the</strong> importer will still have to
pay <strong>the</strong> <strong>Packag<strong>in</strong>g</strong> <strong>Tax</strong> on <strong>the</strong> removed boxes.
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The <strong>Packag<strong>in</strong>g</strong> <strong>Tax</strong> does not apply to deliveries outside <strong>the</strong> territory of <strong>the</strong> Ne<strong>the</strong>rlands. A
manufacturer will <strong>the</strong>refore have to make a dist<strong>in</strong>ction between Dutch and foreign deliveries.
For example, a Dutch peanut butter manufacturer will be taxed at <strong>the</strong> moment of <strong>the</strong> first
delivery of <strong>the</strong> peanut butter to a wholesaler <strong>in</strong> <strong>the</strong> Ne<strong>the</strong>rlands. The producer will be taxed
for <strong>the</strong> glass jar, <strong>the</strong> plastic lid, <strong>the</strong> box, <strong>the</strong> foil and any pallets used dur<strong>in</strong>g transportation.
Any subsequent deliveries by <strong>the</strong> wholesaler to a supermarket, or by <strong>the</strong> supermarket to a
consumer are not taxed. The <strong>Packag<strong>in</strong>g</strong> <strong>Tax</strong> concerns one s<strong>in</strong>gle charge, levied at <strong>the</strong> moment
of first delivery <strong>in</strong> <strong>the</strong> Ne<strong>the</strong>rlands.
Ano<strong>the</strong>r example: a U.S. apparel company imports t-shirts <strong>in</strong>to <strong>the</strong> Ne<strong>the</strong>rlands. After <strong>the</strong>y are
imported, <strong>the</strong> U.S. company sells <strong>the</strong> shirts to Dutch, German and French retailers. The shirts
are packed <strong>in</strong> plastic bags and <strong>the</strong> plastic bags are packed <strong>in</strong> cardboard boxes. When sell<strong>in</strong>g to
Dutch retailers, <strong>the</strong> <strong>Packag<strong>in</strong>g</strong> <strong>Tax</strong> becomes due. No <strong>Packag<strong>in</strong>g</strong> <strong>Tax</strong> is due on <strong>the</strong> supplies to
German and French retailers.
The tariff
Because <strong>the</strong> <strong>Packag<strong>in</strong>g</strong> <strong>Tax</strong> legislation has not yet been formally approved, <strong>the</strong> tariffs are not
confirmed. However, it is clear that <strong>the</strong> amount of <strong>Packag<strong>in</strong>g</strong> <strong>Tax</strong> due and payable will depend
on <strong>the</strong> packag<strong>in</strong>g materials used, how <strong>the</strong> materials are used, and <strong>the</strong> weight of <strong>the</strong> materials.
The first 15,000 kilograms of packag<strong>in</strong>g materials will be exempted. Companies which "use" less
than 15,000 kilograms of packag<strong>in</strong>g materials with regard to supplies to <strong>the</strong> Ne<strong>the</strong>rlands will
<strong>the</strong>refore be exempted from <strong>the</strong> <strong>Packag<strong>in</strong>g</strong> <strong>Tax</strong> 1 . However, exempted companies will have to
comply with some of <strong>the</strong> adm<strong>in</strong>istrative obligations.
The legislation makes a dist<strong>in</strong>ction between primary, secondary, and tertiary packag<strong>in</strong>g.
Primary packag<strong>in</strong>g refers to <strong>the</strong> material used directly to package <strong>the</strong> product (e.g., a glass
bottle for beer, a plastic bottle for shampoo). Secondary packag<strong>in</strong>g is used to package <strong>the</strong>
primary packag<strong>in</strong>g (e.g., a box or paper). Tertiary packag<strong>in</strong>g is transport packag<strong>in</strong>g (e.g., foil,
pallets, crates).
The proposed tariffs are 2 :
Material
Primary <strong>Packag<strong>in</strong>g</strong> Tariff
(per kg., <strong>in</strong> Euros)
Secondary & Tertiary <strong>Packag<strong>in</strong>g</strong>
Tariff (per kg., <strong>in</strong> Euros)
Glass 0.0456 0.0160
Alum<strong>in</strong>um 0.5731 0.2011
O<strong>the</strong>r metals 0.1126 0.0395
Plastics 0.3554 0.1247
Paper/Cardboard 0.0641 0.0225
Wood 0.0228 0.0080
O<strong>the</strong>r materials 0.1017 0.0357
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Alert <strong>Tax</strong> November 2007
The consequences for companies
On <strong>the</strong> basis of <strong>the</strong> current proposal for <strong>the</strong> <strong>Packag<strong>in</strong>g</strong> <strong>Tax</strong>, we foresee various (practical) issues
related to its <strong>in</strong>troduction. For example, it seems necessary for every company to check
whe<strong>the</strong>r its supplier should be considered a "manufacturer" under <strong>the</strong> <strong>Packag<strong>in</strong>g</strong> <strong>Tax</strong>
legislation. In <strong>in</strong>stances where a product is sourced from outside <strong>the</strong> Ne<strong>the</strong>rlands, <strong>the</strong>
<strong>Packag<strong>in</strong>g</strong> <strong>Tax</strong> is due if <strong>the</strong> dest<strong>in</strong>ation of <strong>the</strong> product is with<strong>in</strong> <strong>the</strong> Ne<strong>the</strong>rlands. But how about
when <strong>the</strong> products come from outside <strong>the</strong> Ne<strong>the</strong>rlands, but are <strong>in</strong>voiced by a Dutch company?
Companies will also be obligated to determ<strong>in</strong>e how much <strong>Packag<strong>in</strong>g</strong> <strong>Tax</strong> is due, tak<strong>in</strong>g <strong>in</strong>to
account <strong>the</strong> supplier 3 , <strong>the</strong> weight of <strong>the</strong> packag<strong>in</strong>g and <strong>the</strong> dest<strong>in</strong>ation of <strong>the</strong> products. For
example, take a company trad<strong>in</strong>g <strong>in</strong> televisions. A television is shipped <strong>in</strong>side a box. The box
conta<strong>in</strong>s several smaller boxes and/or plastic bags conta<strong>in</strong><strong>in</strong>g accessories. How should <strong>the</strong>
company track and record <strong>the</strong> exact weight of <strong>the</strong> packag<strong>in</strong>g? And what if <strong>the</strong> packag<strong>in</strong>g is
replaced dur<strong>in</strong>g transport or storage?
It is also <strong>in</strong>terest<strong>in</strong>g to exam<strong>in</strong>e <strong>the</strong> position of logistical service providers and packag<strong>in</strong>g
companies. If <strong>the</strong>y are <strong>the</strong> ones packag<strong>in</strong>g <strong>the</strong> product, <strong>the</strong>n who pays <strong>the</strong> <strong>Packag<strong>in</strong>g</strong> <strong>Tax</strong>? And
what if a foreign company delivers goods to a Dutch consumer, e.g., sales via <strong>the</strong> Internet.
Most probably, <strong>the</strong> foreign company, if not exempted, will have to pay <strong>the</strong> <strong>Packag<strong>in</strong>g</strong> <strong>Tax</strong>. How
will <strong>the</strong> Dutch authorities review whe<strong>the</strong>r <strong>the</strong> foreign company complies with <strong>the</strong>
adm<strong>in</strong>istrative obligations?
Potential <strong>in</strong>fr<strong>in</strong>gement of EC law
Tak<strong>in</strong>g <strong>in</strong>to consideration <strong>the</strong> aforementioned issues and o<strong>the</strong>r possible (practical) problems,
Dutch companies may be persuaded to switch from foreign to domestic suppliers. The reason
be<strong>in</strong>g that this ensures that <strong>the</strong> supplier will already have handled much of <strong>the</strong> adm<strong>in</strong>istrative
burden and <strong>the</strong> f<strong>in</strong>ancial obligations. From this po<strong>in</strong>t of view, <strong>the</strong> <strong>Packag<strong>in</strong>g</strong> <strong>Tax</strong> could result <strong>in</strong>
a restriction of free trade with<strong>in</strong> <strong>the</strong> EU.
Because of <strong>the</strong>se and o<strong>the</strong>r concerns, <strong>the</strong> Dutch Council of State has concluded that <strong>the</strong>
<strong>Packag<strong>in</strong>g</strong> <strong>Tax</strong> may <strong>in</strong> fact be a violation of EC law. If an <strong>in</strong>fr<strong>in</strong>gement of EC law is confirmed by
a court 4 , such <strong>in</strong>fr<strong>in</strong>gement could result <strong>in</strong> a situation where <strong>the</strong> paid <strong>Packag<strong>in</strong>g</strong> <strong>Tax</strong> will have
to be refunded to companies and <strong>the</strong> legislation amended. In so far as <strong>the</strong> presumed
<strong>in</strong>fr<strong>in</strong>gement is confirmed, companies cannot automatically make a claim for remission. This
can only be done when an adm<strong>in</strong>istrative objection has been filed <strong>in</strong> a timely manner <strong>in</strong>
advance.
Conclusions
It is important that companies prepare for <strong>the</strong> <strong>Packag<strong>in</strong>g</strong> <strong>Tax</strong> that will be implemented on
January 1, 2008. We advise companies to review at least <strong>the</strong> follow<strong>in</strong>g aspects:
• Will <strong>the</strong> company be subject to taxation?
• How can <strong>the</strong> amount of <strong>Packag<strong>in</strong>g</strong> <strong>Tax</strong> due be determ<strong>in</strong>ed?
• Can <strong>the</strong> <strong>Packag<strong>in</strong>g</strong> <strong>Tax</strong> be passed on to Dutch customers?
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Alert <strong>Tax</strong> November 2007
• Do suppliers and customers need to be <strong>in</strong>formed?
• Is it required to adjust contracts with suppliers and/or customers, and should o<strong>the</strong>r actions
be <strong>in</strong>itiated?
• How can compliance with <strong>the</strong> new regulations be ensured?
• Does <strong>the</strong> <strong>Packag<strong>in</strong>g</strong> <strong>Tax</strong> need to be specified on sales <strong>in</strong>voices?
___
This GT Alert, written by Erik de Bie <strong>in</strong> <strong>the</strong> Amsterdam office, provides basic <strong>in</strong>sight on <strong>the</strong>
upcom<strong>in</strong>g <strong>Packag<strong>in</strong>g</strong> <strong>Tax</strong> regime. If you would like additional <strong>in</strong>formation or if you have
questions, please contact Mr. de Bie (+31 20 30 17 315; debiee@eu.gtlaw.com) or your GT
attorney.
Notes:
1 Please note that <strong>the</strong> packag<strong>in</strong>g that is removed after import but before <strong>the</strong> supply should also be taken <strong>in</strong>to account.
2 The tariffs may still change. There is also still <strong>the</strong> possibility that additional exemptions and exceptions will be
<strong>in</strong>cluded.
3 More precisely, whe<strong>the</strong>r or not <strong>the</strong> <strong>Packag<strong>in</strong>g</strong> <strong>Tax</strong> was already paid by <strong>the</strong> supply<strong>in</strong>g company.
4 Most likely <strong>the</strong> European Court of Justice.
This Greenberg Traurig Alert is issued for <strong>in</strong>formational purposes only and is not <strong>in</strong>tended to be construed or used as
general legal advice. The hir<strong>in</strong>g of a lawyer is an important decision. Before you decide, ask for written <strong>in</strong>formation
about <strong>the</strong> lawyer’s legal qualifications and experience. Greenberg Traurig is a trade name of Greenberg Traurig, LLP
and Greenberg Traurig, P.A. ©2007 Greenberg Traurig, LLP. All rights reserved.
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