Transport and Environment (European Federation for Transport and Environment) T&E

What the Commission proposes

The European Commission has launched a call for evidence for an evaluation and impact assessment running in parallel regarding VAT rules and the circular economy. The initiative aims to modernise selected value added tax rules that currently hinder circular business models, sustainable consumption choices, and the single market for secondary raw materials. It focuses on three specific pillars: second-hand goods, the donation versus destruction of viable goods, and VAT deduction rules for passenger cars. A legislative proposal is indicatively planned for the second quarter of 2027.

• Evaluates and reviews current EU VAT rules to ensure they align with the circular economy and complement the Ecodesign for Sustainable Products Regulation and the Circular Economy Act.
• Examines the VAT treatment of second-hand, refurbished, and remanufactured goods to address lack of deduction rights and complex margin schemes.
• Addresses economic distortions where destroying viable goods is more advantageous under current VAT rules than donating them.
• Considers aligning VAT deduction rules for passenger cars with sustainability objectives and zero-emission mobility goals.
• Assesses policy options including mandatory or discretionary measures on vehicle deductions, harmonised margin schemes, and VAT relief on donations.

What is asked: The Commission asks respondents to provide feedback and evidence on the evaluation of current VAT rules and the impact assessment of potential policy options regarding second-hand goods, the donation or destruction of viable goods, and VAT deduction rules for passenger cars.

Summary written by AI from the Commission's document.

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1. The initiative also supports broader EU efforts to accelerate the transition to zero-emission mobility, including the Commission’s 2025 Communication on decarbonising corporate fleets. It also aligns with the upcoming Recommendation on fiscal and non-fiscal demand-side incentives announced in the industrial action plan for the European automotive sector and the objectives of the revision of the CO2 standards and corporate vehicles proposal to decarbonise corporate fleets with binding national targets for zero- and low-emission vehicles. Value added tax (VAT) is a major source of revenue for Member States, accounting for 7.1% of EU GDP and representing 15.5% of total government tax revenue in 2024.

   Proposal for a Council Directive amending Directive 2006/112/EC as..., page 2 (EN)

2. The Ecodesign for Sustainable Products Regulation (ESPR), which entered into force in 2024 and is being progressively implemented, is a key instrument for making environmentally sustainable and circular products the norm. By establishing requirements relating to durability, repairability and reusability, which thereby support the repair- and second-hand markets, it prolongs product life and encourages customers to make more sustainable choices. In addition, the ESPR also addresses the destruction of unsold but viable consumer products by requiring economic operators to take all necessary measures to prevent them having 1 Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ L 347, 11.12.2006, p. 1, ELI: http://data.europa.eu/eli/dir/2006/112/oj) Ref. Ares(2026)8589104 - 09/09/2026

   Proposal for a Council Directive amending Directive 2006/112/EC as..., page 1 (EN)

3. Reducing resource dependencies and keeping materials in productive use for longer are important not only for achieving the EU’s environmental objectives, but also for improving its industrial competitiveness and economic security. This is reflected in the Clean Industrial Deal, in which the Commission identified circularity as one of the key enablers of a competitive and decarbonised European economy and announced a future ‘green VAT initiative’ (also referred to as ‘Circular VAT’). The importance of the circular economy for achieving the EU’s ambition to boost competitiveness and economic security will also be reflected in the forthcoming Circular Economy Act (CEA), which is intended to strengthen the single market for secondary raw materials and is scheduled for adoption in late 2026.

   Proposal for a Council Directive amending Directive 2006/112/EC as..., page 1 (EN)

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What the Commission proposes

The European Commission proposes the Cloud and AI Development Act to establish a framework of measures aimed at strengthening Europe's cloud and artificial intelligence ecosystem. The initiative focuses on three pillars, which include research and innovation for greening infrastructure, industrial investments to triple EU data processing capacity, and actions to increase secure data processing capacities for cloud providers in the EU. Ultimately, the proposal seeks to address infrastructure gaps, reduce critical dependencies on non-European providers, and enhance the Union's digital sovereignty and competitiveness.

• Addresses the EU gap in cloud and AI infrastructure capacity through three distinct pillars.
• Promotes research and innovation to accelerate sustainable cloud and AI computing technologies.
• Aims to triple the EU data processing capacity over the next 5 to 7 years via industrial investments.
• Introduces measures to increase secure data processing capacities for high-critical use cases.
• Establishes common criteria for sovereign cloud computing services to reduce extraterritorial dependencies.
• Promotes open-source solutions and joint public procurement activities across the public sector.

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1. 192 Specific objective Legislation or policy initiative Gap with regards to specific objective / relationship with the cloud and AI Development Act (“this initiative”) of the identified and recognised data centre energy efficiency best practices within the Code of Conduct. SO2 - Ensure attractive conditions for the deployment of sustainable and innovative computing capacity European Grids Package, put forward by the Commission [on 10 December 2025] aims to modernise and enhance the EU’s electricity grids. It contains targeted legislative changes to the TEN-E Regulation and related regulations and directives, with a view to improving pan-European grid planning. It will consider permitting for grid expansion and cost-sharing in a cross-border context, as well as providing guidance on measures to accelerate grid connections within the current legislative framework.

   COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT REPORT..., page 192 (EN)

2. Greenhouse gas emission intensity of electricity generation in Europe | Indicators | European Environment Agency (EEA) clxxxv The IEA 4E EDNA policy work underlines that reducing infrastructure use (PUE) can be achieved by smaller data centres through grants or technical support, separate from Minimum Energy Performance Standards or

   COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT REPORT..., page 104 (EN)

3. 191 Specific objective Legislation or policy initiative Gap with regards to specific objective / relationship with the cloud and AI Development Act (“this initiative”) This will also kick off the work on a separate proposal for data centre minimum performance standards, building on the sustainability metrics established under the Energy Efficiency Directive. establishment of minimum performance standards, stemming from the Directive, could set the minimum specifications of sustainability for future data centres in Europe). The initiative will contain measures to incentivise the roll- out of energy-efficient data centres. To identify which data centres are sustainable, this initiative will refer to the rating scheme developed under the Energy Efficiency Directive.

   COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT REPORT..., page 191 (EN)

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