Vat and circular economy

Finnish Commerce Federation is a nationwide lobbying organisation whose mission is to promote Finnish commerce. We work to improve the operating conditions for companies active in wholesale and retail trade, to stimulate co-operation within the sector and to enhance the commercial and employer interests of our members.

We play an important role in the labour market, negotiating collective labour agreements, resolving labour disputes and serving our members in employment issues. Our aim is to increase further the scope and relevance our member services.

Commerce employs around 300,000 people in Finland. There are around 7,000 member companies in the scope of Finnish Commerce Federation.

Finnish Commerce Federation welcomes VAT and the circular economy initiative. We are pleased to provide our comments on value added tax matters related to promoting the circular economy.

Donation & destruction of viable goods

Finnish Commerce Federation stresses that to enable the transition to a circular economy, legislation must be as simple as possible and ensure that donating is always a viable and attractive option for businesses. EU-level harmonization plays a central role here. A consistent and clear framework is needed across the Single Market so that companies face the same predictable rules without fragmented interpretations. VAT relief should cover both suitable non-food goods as well as food products.

Reforming tax treatment must take into account the actual economic value of unsold goods. Once a company determines that products can no longer be sold to consumers, they become an expense, for instance, by occupying valuable warehouse space. At the time of donation, the economic value of the products to the donor is, in practice, zero or negative, as they can no longer be sold through its normal sales channels, which should also be recognized in VAT taxation. However, this does not mean that the products are entirely worthless, they may still hold real residual value elsewhere, for instance for the recipient. Tax relief for eligible contributions should therefore not depend on the donor proving that every donated item lacks taxable value.

When implementing the reform, it is strictly vital to avoid increasing administrative burden. If donations are tied to heavy reporting obligations, new notification procedures, or unreasonable documentation demands, the threshold for donating will become unsustainably high, especially for small and medium-sized enterprises. The European Commission must ensure that donating viable goods becomes a tax-neutral and seamless practice throughout the EU.

Finnish Commerce Federation is concerned about using new restrictions on input VAT deduction for destroyed goods as the main way to encourage donations. Destroying products can be necessary for valid safety, legal, quality, economic, or operational reasons. In addition, donating is not always possible because there are no suitable recipients or enough capacity to distribute them. The impact assessment should analyze if removing the VAT cost from qualified donations can achieve the goal with less administrative burden than putting limits on VAT deductions for destruction.

Passenger cars

Finnish Commerce Federation supports moving to lower-emission mobility. However, VAT should stay a general consumption tax based on the principle of neutrality. The right of deducting input VAT should depend on whether the costs are used for taxable business activities, with proper handling of private use, instead of depending on the vehicle’s engine technology or environmental category. Environmental goals should be reached through tools that are better suited for emissions, without breaking the main principles of the VAT system.

Second-hand & remanufactured goods

The Finnish Commerce Federation warmly supports the expansion of the resale economy and circular business models. To enable this growth, VAT rules should offer flexibility and legal certainty for businesses. While the margin scheme remains a crucial mechanism to avoid double taxation when goods re-enter commercial circulation, it is important that the scheme remains optional. Businesses should retain the possibility to apply ordinary VAT treatment to eligible transactions depending on their operational needs. Second-hand status alone should not be a reason for restricted deduction rights. In addition, businesses combining new and second-hand sales should be able to access flexible VAT rules without having to create a separate company only for their second-hand operations.

Finnish Commerce Federation emphasizes that clear and practical EU-wide definitions for reuse, repair, refurbishment, and remanufacturing are essential to ensure consistent application across Member States. Also, documentation standards should build on ordinary business records rather than creating parallel reporting requirements or requiring businesses to reconstruct historical supply chains.

Alongside improvements to the margin scheme, the Commission could assess alternative approaches to address residual VAT embedded in goods acquired without deductible VAT, including where they are transformed into components or recovered materials. Such an assessment should compare alternatives with an improved margin scheme and examine fiscal effects, fraud risks and administrative feasibility. Any alternative mechanism should have a clear legal basis and proportionate safeguards, and should be distinguished from existing input VAT deduction rights.