European Union recommends the use of tax incentives to reconcile sustainability with competitiveness

The European Green Deal, launched in December 2019, was designed as a response to climate and environmental challenges in the European Union (EU), with the ultimate goal of achieving climate neutrality by 2050 and an interim target of a net reduction in greenhouse gas emissions by at least 55% (compared with 1990 levels) by 2030. Because achieving this goal could take a toll on the competitiveness of European companies, the Letta and Draghi reports have pointed to the need to combine the fight against climate challenges with maintaining or recovering that competitiveness. In line with the recommendations in these reports, in its Competitive Compass for the EU, the European Commission proposed in January 2025 the creation of a joint roadmap for decarbonization and competitiveness, which was introduced in February 2025 and is built around the so-called Clean Industrial Deal. This roadmap charts business incentives for European industry to decarbonize and specifically mentions corporate income tax incentives (including accelerated depreciation or tax credits for investments in industrial decarbonization and clean technology projects).

Because these measures could be classed as state aid, in June 2025 the Commission approved the State Aid Framework to support the Clean Industrial Deal and Commission Recommendation (EU) 2025/1307 of July 2, 2025, on tax incentives has been added to achieve the described goals.

First, the recommendation is to introduce tax assets (which may take the form of corporate income tax credits, or alternatively, for other taxes) to encourage investments that ensure sufficient manufacturing capacity in clean technologies and for industrial decarbonization, along with increasing the intensity of these credits for projects carried out by small and medium-sized enterprises. It also proposes that companies should be allowed to carry forward unused tax credits in the following four years or even monetize them (as is currently the case with R&D&I tax credits, for example).

Generous incentives are also recommended for clean technologies and corporate fleets of zero-emission vehicles through accelerated depreciation (with a minimum depreciation of 30% of eligible costs in the year of acquisition) or allowing full and immediate expensing. It also encourages flexibility by allowing taxpayers to decide on their depreciation schedules and allowing these types of incentives to be applied more intensely in relation to investments that contribute to achieving policy objectives relating to resilience.

With just a few months to go before the end of fiscal year 2025, Spanish legislation is expected to be amended to introduce this type of incentive. Currently, only certain low-emission vehicles and recharging infrastructure are eligible for unrestricted depreciation, provided that, in both cases, they come into operation in tax periods beginning in 2024 and 2025.