DRS – VAT versus ecology and plastic?

Both Poland and the UK had planned to launch the country-wide Deposit Return Scheme (DRS) for drinks containers from October 2025. The UK, however, has revised its timeline to launch the DRS in October 2027. Although the basic idea of a DRS is the same in both countries – the selective collection of empty packaging and its transfer for recycling or, in the case of glass bottles, reuse – the two countries have opted for a different model.

In the UK, there will be a single operator – the UK Deposit Management Organisation (UK DMO), whereas in Poland there are currently seven operators. The Polish DRS also includes reusable glass bottles, while the British scheme will cover PET bottles as well as steel and aluminium cans; the inclusion of glass bottles is still under consideration.

Introducing the DRS also has significant implications for the tax settlements of drink producers in Poland, which is the subject of this article.

The deposit system – key functions
The deposit system consists of a set of measures and solutions which provide:

• The selective collection of empty packaging and its transfer for recycling or reuse in the case of glass bottles
• The collection and refund of deposits from beverage purchasers
• The recording of activities undertaken within the system, including selective collection and financial settlements between participants

Although the use of deposits was already known before, it was not subject to so many new legal regulations and did not have such significant effects on VAT on the part of beverage-market participants as those resulting from the DRS.

Deposits are (firstly) not subject to VAT
Some regulations concerning the tax consequences of participation in the DRS are clearly beneficial. Under the new regulation, Article 29a(11) of the VAT Act, deposits collected on the sale of beverages in packaging covered by the deposit system (that is, packaging with a deposit mark) will not be subject to VAT at the time of collection. This regulation is simple and unambiguous – thanks to it, VAT will not be charged on deposits by shops selling beverages with a deposit, nor by wholesalers selling beverages to shops.

Similarly, when a deposit is returned at a collection point – either in a shop or at a separate point – VAT should not be deducted from the amounts of the returned deposits. Consumers returning the packaging will receive the amount indicated on the deposit label.

New tax obligations
However, regulations imposing two additional tax obligations on beverage producers (including direct distributors) participating in the deposit system have also come into force:

• Settling tax on unreturned containers
• Keeping tax records of containers

Tax on unreturned containers
Tax on non-returned containers (Article 29a(12c) of the VAT Act) will be paid by beverage producers when the number of beverages placed on the market in a given year exceeds the number of packaging collected in the deposit system. They should then report it in their VAT return for January of the following year, submitted by 25 February. Only for the 2025 settlement will there be an extended deadline until 25 March.

However, the tax on unreturned packaging will not function in every respect like VAT, which will be disadvantageous for beverage distributors. The most obvious example of this situation will be the impossibility to obtain a refund from the tax authorities if more containers is returned in a given calendar year than were placed on the market, resulting in a negative calculation of this tax. The regulations only provide for the possibility of settling the surplus of returned packaging in subsequent years.

Tax records of containers
Regardless of the very similar obligations under the packaging regulations, both drink producers and so-called deposit system operators will be required to keep records for the purpose of verifying the calculation of tax on non-returned packaging. These records must include the data necessary to determine the tax base, including:

• Containers covered by the deposit system placed on the market, broken down by type of packaging, number and value of deposits collected in a given year
• Containers and packaging waste covered by the deposit system that has been returned, broken down by type of packaging or packaging waste, their number and the value of the deposit refunded in a given year

The new records are to be kept ‘in electronic form’, which means using any computer program. There are no binding templates for how records should be kept, nor are there any regulations requiring how they should be prepared in SAF-T format. Importantly, the records are to be made available only at the request of the tax authorities and stored for a fairly long period – five years from the end of the year for which the tax on unreturned packaging was settled. In the draft amendments to the VAT Act No. UD314, the storage period is to be extended by another year to five years from the end of the year in which the tax was settled.

More challenges ahead
Although tax explanations regarding VAT settlement in the deposit system have also been issued, some decisions regarding tax settlements in this system (whether to document collected deposits with a note or in an attachment to the invoice) must be made by its participants. The interpretation of the provisions of the VAT Act in the context of the deposit system (whether free of charge transfers are included in the calculation of tax on unreturned packaging) is also still taking shape.

Adding to this are specific transitional provisions – the exclusion of dairy products, special provisions for returnable glass bottles and the retention of existing regulations for returnable packaging outside the deposit system – many practical problems are to be expected regarding the settlement of VAT on containers within and outside the deposit system in the coming year 2026.

Another terra incognita for DRS consequences seems now to be corporate income tax, as there is no official guidance form tax authorities if deposits received by drink producers should be treated as a taxable income or not. In our view it should rather not, as it should be paid by drink producers to DRS operators.

Similarly, shops (collections points) must pay out deposits when containers are returned and should settle deposits with the operator. In both cases, this is not a permanent financial gain.

Summary
In conclusion, DRS systems are based on the same idea, but their legislation and operational preparation needs time and consideration.

The same applies to tax, especially VAT regulations. If there are no sufficient amendments to tax legislations, introduction of DRS may impose new taxation or tax-related reporting obligations.

From the point of view of drinks producers, this may outweigh the environmental benefits of joining the DRS.