LEGAL

Environmental protection and financial optimization of investments in Catalonia

Deductions on environmental investments: an important source of financing.

April 2014.- Tax credits on environmental investments allow all companies to improve their environmental impact and, at the same time, represents a major economic incentive consisting of a reduction in their Corporate Income Tax. More specifically they consists of tax relief of 8% on the amount invested in certain assets, which is applicable against Company Income Tax.

Environmental improvements that qualify for this tax credit may consist of a reduction in:

  • atmospheric pollution,
  • water pollution and
  • the generation of industrial waste or improvements in its treatment.

One of the most important aspects of this tax relief is the broad base of its application, which not only covers investments whose only aim is to reduce air and water pollution or industrial waste (such as sewage treatment plants or atmospheric emissions filters) but can also benefit companies whose investments indirectly lead to reductions in pollution or waste generation, even when their principal objective is economic and productive.

Which types of investment are eligible for tax deductions?

The type of investment that can lead to this tax credit is virtually infinite, but below are examples of some of the more usual cases, in addition to investments in exclusively environmental items (i.e. hose filters, gas cleansers, sewage works, etc.):

  • replacement of old equipment with more economically efficient and environmentally sustainable models,
  • redesign of the production process to increase productivity and efficiency while reducing pollution and waste generated,
  • acquisition of new equipment (which does not replace old equipment) which can be considered as Best Available Techniques, according to BAT conclusions approved by the European Commission Decisions.

All of these investment types require prior approval from the General Directorate for Environmental Quality, which is the body responsible for the air quality and environmental permits in the Catalan Government (Generalitat de Catalunya). Approval can be obtained by making a simple application which usually receives a quick response. The amount approved will depend on the level of improvement resulting from the investment and the reduction in pollution and waste.

Until 2012 applications received for this tax incentive in Catalonia amounted to an approximate total of €3,858 million, of which €2,866 million were considered as being destined for environmental protection and therefore approved for tax relief. To date, companies from different economic sectors have been able to benefit from this tax incentive, including, amongst others, the automobile and its’ components sector, the chemical, pharmaceutical, textile and, metallurgical sectors, the production of industrial interim products, the food sector, etc. All of this clearly shows that this is a broad, highly interesting and practical opportunity to finance investments and a good example of environmental taxation.

International trends

Environmental protection is one of the main concerns in our society. In recent years, this concern has led the governments of the more developed countries to introduce, a number of administrative and legal measures (so-called, Command & Control measures) and economic measures (so-called, market based instruments) to address and resolve this problem and offer us a better future.

These market based instruments are based on the criteria known as “polluter pays” so that non-polluting economic organisations have a certain economic advantage over the rest by making their “non-polluting” products more price-competitive (and attractive for potential purchasers) than those of other companies.

Economic measures such as the tax credit described above, offer an incentive for investment in, and purchase of, assets that incorporate environmental improvements by offering the right to apply this tax relief.

The benefits of responsible investment

This is undoubtedly a great economic / financial opportunity for profit-making and for financing investments, while at the same time taking responsibility for the environment and complying with the most demanding policies for social corporate responsibility.

Gerard Marata
Partner in the Tax Department
Ventura Garces & López-Ibor, Advocats

Albert Avellaneda
Head of the Section for Best Available Techniques
General Directorate for Environmental Quality


Gerard Marata

Gerard Marata is Partner in the Tax Department at Ventura Garcés & López-Ibor Advocats and a leading lawyer in the field of Tax and Environment Law according to the prestigious Best Lawyers Directory 2014.

He is a specialist in tax on renewable energies and the environment – hydrocarbons, greenhouse gas emissions, controlled deposits and the validation of waste and atmospheric and water pollution.

He holds a degree in Economics from the Universitat Autònoma de Barcelona (1996), a Master’s degree in Company Law from the Universitat Pompeu Fabra (1997) and a degree in Law from the Universitat Oberta de Catalunya (2007).

 

gerard.marata@ventura-garces.com
www.ventura-garces.com

Albert Avellaneda

Albert Avellaneda holds a degree in Biology from the Universitat de Barcelona (1994) and a Master’s degree in Environmental Engineering and Management from theUniversitat Politècnica de Catalunya (1997).

 

From 1994 he worked at the Research and Information Service for Clean Technology at the Department of the Environment, and since 2000 he has been Head of the Section for Best Available Techniques at the General Directorate for Environmental Quality in the Department of Land and Sustainability.

 

This is the body responsible for issuing agreements for the investments that are eligible for environmental tax deductions.

 

albert.avellaneda@gencat.cat
www.gencat.cat/territori

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