On September 30, 2022 the Council of the European Union issued a press release announcing that on September 30, 2022 the EU energy ministers reached a political agreement on a proposal for a Council Regulation to address high energy prices. The regulation introduces common measures to reduce electricity demand and to collect and redistribute the energy sector's surplus revenues to final customers (the temporary solidarity contribution). Like we did in our Article “A critical remark regarding the temporary solidarity contribution that the European Commission intends to have implemented” from September 14, 2022, in this article we will also focus on the temporary solidarity contribution.
The temporary solidarity contribution
As we stated in the title the proposal for a Council Regulation on an emergency intervention to address high energy prices contains changes in comparison to the version we commented on in our article from September 14, 2022.
Definitions
‘Union companies and permanent establishments with activities in the field of crude petroleum, natural gas, coal and refinery sectors’ means Union companies or permanent establishments generating at least 75 % of their turnover from economic activities in the field of the extraction, mining, refining of petroleum or manufacture of coke oven products, as referred to in Regulation (EC) No 1893/2006 of the European Parliament and of the Council.
‘Fiscal year’ means a tax year, calendar year or any other appropriate period for tax purposes as defined in national law.
‘Union company’ means a company of a Member State which according to the tax laws of that Member State is considered to be resident in that Member State for tax purposes and, under the terms of a double taxation agreement concluded with a third State, is not considered to be resident for tax purposes outside the Union.
‘Permanent establishment’ means a fixed place of business situated in a Member Statethrough which the business of a company of another State is wholly or partly carried on in so far as the profits of that place of business are subject to tax in the Member State in which it is situated.
‘Surplus profits’ means taxable profits, as determined under national tax rules in the fiscal year 2022 and/or the fiscal year 2023 and for their full duration, accrued from activities carried out at the level of Union companies and permanent establishments with activities in the field of crude petroleum, natural gas, coal and refinery sectors which are above a 20% increase of the average of the taxable profits in the four fiscal years starting on or after 1 January 2018.
MEASURE CONCERNING THE CRUDE PETROLEUM, COAL, NATURAL GAS AND REFINERY SECTORS
In the articles below we have made some of the important amendments in bold.
Article 13 - Support to final energy customers through a mandatory temporary solidarity contribution
1. Surplus profits generated from activities in the crude petroleum, natural gas, coal and refinery sector shall be subject to a temporary solidarity contribution unless Member States have enacted equivalent national measures.
2. Member States shall ensure that enacted equivalent national measures share similar objectives and are subject to similar rules as the temporary solidarity contribution under this Regulation and generate comparable or higher proceeds to the estimated proceeds from the solidarity contribution.
3. Member States shall adopt and publish measures implementing the mandatory temporary solidarity contribution referred to in paragraph 1 by 31 December 2022.
Article 14 - Base for calculating the temporary solidarity contribution
The temporary solidarity contribution for Union companies and permanent establishments, including those that are part of a consolidated group merely for tax purposes, with activities in the field of crude petroleum, natural gas, coal and refinery sectors shall be calculated on the taxable profits, as determined under national tax rules, in the fiscal year 2022 and/or the fiscal year 2023 and for their full duration, which are above a 20% increase of the average of the taxable profits, as determined under national tax rules, in the four fiscal years starting on or after 1 January 2018. If the average of the taxable profits in those four fiscal years is negative, the average taxable profits shall be zero for the purpose of calculating the temporary solidarity contribution.
Article 15 - Rate for calculating the temporary solidarity contribution
1. The rate applicable for calculating the temporary solidarity contribution shall be at least 33% of the base referred to in Article 14.
2. The temporary solidarity contribution shall apply in addition to the regular taxes and levies applicable according to the national legislation of a Member State.
Article 17 - Temporary nature of the solidarity contribution
The temporary solidarity contribution applied by Member States in accordance with this Regulation shall be of a temporary nature. It shall only apply to surplus profits generated in the fiscal years referred to in Article 14.
Most important changes
For taxpayers the most important changes to the proposal, in comparison to the initial proposal, can be found in the Articles 14 and 17.
Years for which Member States can levy a temporary solidarity contribution
Article 14 of the initial proposal arranged that the EU Member States were to levy a temporary solidarity contribution over 1 fiscal year being the fiscal year starting on or after 1 January 2022. Whereas as I read Article 14 with the amendments, now EU Member States can decide to levy a temporary solidarity contribution over only 1 year being either the fiscal year 2022 or the fiscal year 2023 or they can decide to levy temporary solidarity contributions over 2 consecutive fiscal years (fiscal years 2022 and 2023).
Change of the number of years to be taken into account for calculating the average of the taxable profits
The initial proposal arranged that the average taxable profits were to be calculated by taking into account the taxable profits of the three fiscal years starting on or after 1 January 2019 (as determined under national tax rules).
In the proposal on which the EU energy ministers reached a political agreement the three year period is changed in a 4 year period with the first year being the fiscal year being the fiscal year starting on or after 1 January 2018.
Those who have read our article from September 14, 2022 will understand that I am in favor of this lengthening of the period of which the taxable profits are taken into account when calculating the average taxable profit which forms the basis for the calculation of the so-called ‘surplus-profit’. The reason here for is that as we argued in our article from September 14 the fiscal year 2020 was a bad year for many companies with activities in the field of crude petroleum, natural gas, coal and refinery sectors. As we argued in our article of September 14 the short lesser the number of fiscal years of which the taxable profits are to be taken into account when calculating the average taxable profit which forms the basis for calculating the so-called ‘surplus profit’ the bigger the impact of an extremely good or bad year. Therefore by increasing the number of fiscal years of which the taxable profits have to be taken into account when calculating the average taxable profit, the impact of the bad fiscal year 2020 will be smaller.
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