Diogo Feio analyses “New Environmental Contributions and the Principal of Legality”

SÉRVULO IN THE PRESS 11 Jan 2022 in NOVA Tax Research Lab

Diogo Feio, Partner at SÉRVULO, signs the opinion article in the NOVA Tax Practitioners Column -  “New Environmental Contributions and the Principal of Legality”. 

Context and issue 

At the end of 2021, the Government has issued an Ordinance that regulates the Contribution on Single-use Plastic and Aluminum Packaging, or hybrids, to be purchased in ready-to-eat meals. Thereby, the Government implemented paragraph 6 of article 320 of Law 75-B of 2020 (Budget Law for 2021) in which it is determined that the Minister of Finance and the Minister of the Environment shall proceed to the regulation of such Contribution. Thus, and in brief, further to the creation of the Contribution in the Budget Law for 2021, the Government, has enacted it on the last day of the year. The big question that arises now is simple: are we facing a simple regulation or an innovative normative determination? 

Before answering the question, it is useful to describe in detail what is determined by the two normative acts at issue: 

In the first place, the Budget Law creates the Contribution, the amount to be paid (of € 0.30 per packaging), the general taxable event (on the introduction of the packaging into consumption); the general determination of the taxable persons (depending on the situation: producers, suppliers or purchasers of the packaging); the consignment of its revenue; some cases of non-taxation; and finally, the timeframe for its application. In summary, the Budget Law provides for the general elements and application of this new Contribution. 

On the other hand, the Ordinance – which aims to provide the necessary regulations regarding this matter – determines, among other elements, what is included and what is excluded from the concept of ready-to-eat meals; the list of exemptions; the indication of who will be subject to the charge; foresees a mandatory passing on of the tax; the specification of what can be considered as a release for consumption; the enumeration of the situations in which the Contribution is not chargeable; and the determination of this Contribution as a non-deductible expense for income taxes purposes. 

The problem 

The main question that may be raised in the relation between the Law and the Ordinance is the compliance, or not, with the Principle of Legality. According to the constitutional provisions, not only taxes must be created by law, but also a law must determine its taxable events, the tax rate, the tax benefits and the guarantees of taxpayers. Consequently, it is not possible to define these elements, as far as taxes are concerned, by a simple Ordinance issued by members of the Government. Such an Ordinance may only regulate the necessary elements but cannot innovatively determine their regime. In other words, it will only be able to determine the payment and assessment regime innovatively. It seems clear that this limit was exceeded in this case. 

The answer 

The first aspect that needs to be clarified is the legal nature of this Contribution. In this respect, the presented elements seem to indicate that we are dealing with a unilateral charge to be paid by taxpayers. Although it is referred to as a Contribution, the absence of any consideration to be provided by a public entity leads to the application of the Principle of Legality under the terms foreseen in the Constitution for taxes. 

Furthermore, it seems clear from the description below that the Ordinance determines the essential elements of this Contribution in an entirely innovative way. 

Finally, this contribution should be framed in the determination of taxes that assume extra-fiscal objectives, in this case, derived from environmental protection. Moreover, this contribution is based on objectives set by the European Union (either in Directive 94/62/EC of 20 December 1994, on packaging and packaging waste; or in Directive 2019/904 of 5 June 2019 on the reduction of the impact of certain plastic products on the environment), on a path towards setting up its own resources. However, does the compliance of these obligations by the State and the emergence of a new phase regarding the legal basis of taxes allow a relieve, or even a modification, of the Principle of Legality? The open way the Constitutional Court has admitted the emergence of new tax figures is well known but determining the limits of this whole movement will be one of the most interesting issues to follow in the near future. 

Read Diogo Feio's opinion article in the NOVA Tax Practitioners Column, here.