Brussels targets waste, used goods and petrol cars in green VAT review
The European Commission is exploring a new package of “green VAT” reforms aimed at supporting the circular economy and accelerating the transition to lower-carbon business models.
While still at the review stage, the proposals signal a broader shift in how Brussels views VAT: not just as a revenue raiser, but as a tool to influence commercial behaviour. Attempts to ‘green VAT’ have struggled in the past
The EU Parliament is also reviewing behavioural taxes.
Stop destroying stock, start donating it
One focus is the VAT treatment of unsold goods.
Current rules can create the odd outcome where businesses face fewer VAT consequences destroying excess stock than donating it. The Commission is examining ways to reverse those incentives.
Options under consideration include:
- VAT relief for charitable donations
- Harmonised rules across EU member states
- Anti-abuse measures to prevent disguised commercial sales
The objective is to make donation simpler and waste less attractive. As an example UK VAT on donations has been reformed in April 2026.
EU national variations clutter the playing field
The application of VAT rules to donations varies significantly across the EU due to the flexibility allowed by the EU VAT Directive. Each member state has the authority to define the scope of VAT exemptions, leading to different practices:
- France: In France, donations of goods to charities are generally exempt from VAT, provided the charity meets certain conditions and the goods are used in a way that benefits the public good. French law requires that the goods should not be resold at a profit by the charity, ensuring that the exemption is used only for genuinely charitable purposes.
- Germany: Germany’s approach is more restrictive. VAT is generally due on donated goods unless specific exemptions apply. For example, donations to public-benefit organizations can be exempt from VAT if the goods are intended for use in non-commercial activities that benefit the public. However, if the goods are resold, even by a charity, VAT may be due.
- Italy: In Italy, VAT exemptions are available for donations to recognized charities, especially for goods like food, clothing, and medical supplies. These exemptions are part of broader efforts to reduce waste and support social welfare initiatives. However, the rules require strict documentation and proof that the donated goods are used for their intended charitable purpose.
Second-hand VAT rules face overhaul
Brussels is also reviewing the VAT margin scheme for second-hand goods, long criticised for complexity and fraud risks. Member states have already been acting – Sweden is reviewing VAT on reused good.
Possible reforms include:
- Replacing margin calculations with simpler deduction mechanisms
- Creating a common EU definition of refurbished goods
- Simplifying cross-border sales
- Harmonising treatment across member states
The changes would support the EU’s wider circular economy agenda and could significantly reshape the used and refurbished goods market.
VAT pressure on petrol fleets
Company car taxation is another target.
The Commission is assessing whether VAT recovery should more clearly favour electric vehicles while limiting deductions for higher-emission petrol and diesel fleets.
Potential measures include:
- Enhanced VAT recovery for EVs
- Restrictions on VAT deductions for combustion-engine vehicles
- Greater consistency in vehicle VAT rules across the EU
VAT becomes a policy tool
The review sits alongside wider discussions on the future of the EU VAT system following the VAT in the Digital Age (ViDA) reforms.
The direction of travel is increasingly clear: VAT is being used to promote environmental objectives as well as raise revenue.
