Background and Latest Developments
On 10 September 2026, the European Commission launched a public consultation aimed at aligning EU VAT rules with the needs of a circular and low-emission economy. The consultation is part of the forthcoming Circular Economy Act and seeks stakeholder input on adapting VAT Directive rules in key areas. The consultation period runs until 4 November 2026, with a legislative proposal expected in early 2027. (taxation-customs.ec.europa.eu)
Key Areas Under Review
The consultation highlights three primary areas:
- Treatment of second-hand goods – how VAT refunds, exemptions or special schemes could better reflect sustainable reuse.
- Handling destruction of viable goods – when goods are destroyed though still functional (e.g. stock damaged), how should the input VAT or deductions be treated?
- VAT rules for business passenger cars – rules for deducting VAT on cars used for business, especially low-emission or multi-source usage models. (taxation-customs.ec.europa.eu)
Implications for Businesses
Planning & Pricing
Businesses dealing in second-hand goods should monitor changes carefully. If input deduction rules shift, profit margins and pricing structure may need to adjust. In sectors like used clothing, refurbished electronics, or furniture, understanding whether VAT is applied at sale, resale, or refurbishing stages will be crucial.
Accounting & Compliance
Accounting systems may need to track details such as whether goods destroyed were still viable, how business cars are used (private vs business), and maintain records supporting deduction claims under any new regimes. Systems and personnel training may need updating ahead of arrival of new rules (early 2027).
Sustainability and ESG Reporting
Circular economy alignment is central to many corporate sustainability strategies. Companies embedding circular models will benefit not only tax compliance but also reputationally. Clearer VAT deductions for sustainable practices (e.g. refurbishing, reuse) could also lower the net cost of such practices.
Actionable Advice Before Law Changes
- Participate in the consultation if your business is affected. Submissions due by 4 November 2026.
- Map your business processes: what proportion of goods are second-hand, destroyed while usable, or cars used for mixed purpose. This baseline helps estimate impacts.
- Review contracts and pricing) to anticipate whether VAT treatment changes could affect margin carve-outs (e.g. on destruction provisions) or cost sharing for business car usage.
- Stay alert for draft text when published in early 2027 – legalisation may include grandfathering or transitional arrangements.
Example Scenario
A company refurbishing second-hand electronics currently deducts input VAT when purchasing used devices, sells at reduced margins, and treats any destroyed item as a loss. Under new rules, if deduction of input VAT on destroyed goods is restricted unless destruction is certified, this could raise costs materially. Alternatively, reforms could allow enhanced deduction if circularity criteria are met, benefiting refurbishers.
Conclusion
The Commission’s consultation marks a turning point in the EU’s tax regime for circular economy and low-carbon priorities. Businesses should use the coming months to understand, adapt internal systems, and take part in shaping new VAT rules. Preparation now means less disruption—and possibly more opportunity—later.