Windfall tax legislation in selected countries

26. 6. 2023
Windfall tax legislation in selected countries

With the end of 2022 approaching, the introduction of the so-called windfall tax has become a society-wide theme. The purpose of this tax is to levy the extraordinary profits made by energy and other companies following the sharp rise in the price of energy and services, which, incidentally, is also linked to the ongoing war in Ukraine.

That this is a topic of real importance at least within the European continent is proved by the fact that measures that can theoretically be included under the term windfall tax have been adopted at the level of the entire EU. The ministers of European countries have agreed on the basic parameters of taxation of certain energy companies, which can be introduced at this minimum level by all EU countries.

The Regulation contains measures affecting the profits of electricity producers and suppliers, as well as measures relating to trade in crude oil, natural gas, coal and refining. For all areas, the Regulation lays down the basic parameters of the measures and the objectives to be achieved.

Given the above, there can be relatively large differences in the specific windfall tax legislation between EU countries, which is why we have decided to provide you with a brief summary of what the windfall tax looks like at our nearest neighbors.

Slovakia, for example, was already considering the introduction of a type of windfall tax on windfall profits from Russian oil imports in May 2022, before the windfall tax was introduced on EU level. Currently, Slovakia applies a windfall tax of 55% on excessive profits, which applies to windfall profits of companies operating in the crude oil, natural gas and coal sectors.

Furthermore, Slovakia applies a windfall tax on electricity producers. The tax is applied to the profits from the sale of electricity if its price exceeds the limits set for the different methods of energy production, which range from EUR 50 to EUR 250 per megawatt-hour. Where these limits are exceeded, the tax rate is set at 90 %. Power plants with an installed capacity of up to 0,9 megawatts, hydroelectric power plants and biomass power plants are not subject to this tax. The tax applies temporally for the period from 01.12.2022 to 31.12.2024.

In Germany, the tax on excessive profits of electricity producers has very similar parameters as in Slovakia. A tax of 90% is applied to profits from electricity production that exceed a megawatt-hour threshold ranging from €60 to €130 depending on the production method. This tax also applies to electricity from renewable sources and applies to profits from electricity produced from 30.11.2022 to 01.07.2023, although it may be decided to extend this period until 30.04.2024.

Excess profits in oil, gas, coal products and refining are taxed much less in Germany than in Slovakia. The tax rate here was set at 33%, with the tax applying to profits that are at least 20% higher than in the comparison period, i.e. years 2018-2021.

In Austria, a tax of 40% is applied to excess profits in the oil and gas sector and, as in Germany, profits that exceed the average profits for the period 2018-2021 by 20% are considered excessive. The tax applies over time to profits made between 01.01.2022 and 31.12.2023. Up to 50% of the resources spent on the transition to renewables between 2021 and 2024 can be deducted from the tax, but the mechanism is set up so that the tax level never falls below 33%.

The tax rate for electricity producers in Austria is the same as in Slovakia and Germany, which is 90%. The tax applies to profits for the time period from 01.12.2022 to 31.12.2023 if the price exceeds EUR 140 per megawatt-hour. Also, in the case of this tax, deductions can be applied if an investment in renewable energy is proven.

Poland has not yet introduced any form of windfall tax, but the Polish government is currently working on a bill that should be finalized in the next few weeks. The proposal should apply to mining companies and fuel producers and also affect profits from 2022.

We have previously reported on the form of windfall taxes in the Czech Republic in our previous articles, which you can see here and here.

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