Energy emergency measures: solidarity charge and revenue cap

On 6 October 2022, the EU adopted the Regulation on an emergency intervention to address high energy prices. The adopted Regulation introduces the following measures:

a temporary revenue cap on market revenues of producers obtained from the generation of electricity with lower marginal costs (i.e generation through sources such as renewables, waste, nuclear, lignite, peat and crude petroleum products) until 30 June 2023;
a temporary mandatory solidarity contribution on 2022 and/or 2023 excess profits generated from activities in the crude petroleum, natural gas, coal and refinery sectors;
a voluntary endeavor for EU Member States to reduce their total monthly gross electricity consumption by 10% (when compared to the previous average consumption); and
a mandated reduction in EU Member States gross electricity consumption by at least 5% during identified peak hours (between 1 December 2022 and 31 March 2023).

Although the Regulation is in principle directly applicable in all EU Member States, there are quite some choices to be made regarding, among others, the actual collection mechanics. In this document we provide you with a summary containing information on the national implementation measures regarding the Regulation as taken in each of the EU Member States, as at 30 November 2022.

This update is based on publicly available information. Whilst every effort has been made to ensure the accuracy of the information contained in this publication, this information should only be taken as a guide and does not constitute the provision of advice. Please contact your usual PwC contact for detailed information on the implementation of the Regulation in their local territory. The local territory PwC team may also be able to provide you with more detailed information based on their insights and discussions with the relevant stakeholders.

Alternatively, please contact the PwC team members shown below this article, who would be happy to connect you with a local territory or answer any questions as needed.

Different approaches to implementing the emergency energy measures

As can be seen from the below summary, each of the EU Member States is adopting a slightly different approach to the Regulation.

Most states have made good progress on drafting or implementing the solidarity contribution (otherwise also referred to as a windfall tax), however, many EU Member States have provided little information on the actual design of the proposed market revenue cap. As the revenue cap generally does not link to readily available data, such as annual profits, it may be expected that the approach can vary significantly per jurisdiction.

In addition, whilst many EU Member States have issued draft or proposed legislation for the solidarity contribution, there still seems to be a lack of clarity on the exact mechanics for its calculation across each territory. Given the solidarity contribution looks set to apply to different taxable bases, at different rates, in respect to different periods all across the EU, taxpayers should adopt a proactive approach to assessing its potential impact. In some instances, the effective tax rate of some taxable profits may exceed 70%, so this could have a material cash tax impact on many of the impacted taxpayers.

High level country overview

1. Austria

Temporary revenue cap on market revenues of producers: The Austrian government has announced plans to implement a revenue cap on power companies. Currently the discussion is for electricity producers to implement this cap for 80% of electricity sales with a price greater than 180 Euro/MWh.

A temporary mandatory solidarity contribution: The Austrian government has announced plans to implement a 40% windfall tax on oil and gas firms. This windfall tax will likely apply in a manner consistent with the EU regulation (i.e. at a rate of 33% and on profits 20% or above the reference period). The windfall tax may however be retroactively applied from 1 July 2022.

2. Belgium

Temporary revenue cap on market revenues of producers: Draft legislation has been prepared, however, this is still pending public release at this time. The revenue cap would likely be applicable for the period of 1 August 2022 to 30 June 2023 and is expected to be set at 130 Euro/MWh. We also anticipate some exceptions to be included in the law once proposed.

A temporary mandatory solidarity contribution: The currently issued draft law provides a solidarity payment for oil producers:

Who are active in the refining sector, for which the contribution would be set at 6.90 Euro/ton crude oil processed between 1 January 2022 and 31 December 2023; and
which have been labeled as ‘primary participants’ to the diesel, gas, oil and petrol products, for which the contribution would be set at 7.80 Euro per cubic meter of products released for consumption.

3. Bulgaria

Temporary revenue cap on market revenues of producers: There is currently little known publicly available information released by the Bulgarian Government in respect to this.

A temporary mandatory solidarity contribution: The Bulgarian Corporate Income Tax Act is scheduled to be amended. The solidarity contribution is expected to apply at 33% to income which is 120% or more of the income earned in the reference period for income related to the 2022 and 2023 income years. More information is expected soon.

4. Croatia

Temporary revenue cap on market revenues of producers: There is currently little known publicly available information released by the Croatian Government in respect to this.

A temporary mandatory solidarity contribution: In mid-November the Croatian government announced an ‘extra profits tax’. This tax is expected to apply for the tax period beginning on 1 January 2022 to all corporate taxpayers who satisfy the following conditions:

Have a total income exceeding 300 million HRK (40 million Euro)
Have a taxable profit of at least 20% higher in 2022 than in the reference period (being an average of the previous four years).

This tax is expected to apply at a rate of 33%. We note there is ongoing public and political debate over the introduction of this tax.

5. Cyprus

We understand Cyprus did receive a derogation in respect of the regulation, however, the Cyprus Ministry of Finance initiated a public consultation on 29 November 2022 on two draft bills aiming to tax the windfall profits of producers and suppliers of energy generated from both fossil fuels and renewables.

Draft Bill 1: A special fee will be levied on the windfall earnings of companies trading in energy generated from renewables;
Draft Bill 2: A ‘special contribution’ will be levied on the excess profits of companies trading in energy generated from crude oil, natural gas, coal and the refinery sector in compliance with EU Council Regulation 2022/1854.

Temporary revenue cap on market revenues of producers: As per Draft Bill 1 mentioned above, the special fee is derived from a formula provided by the Cyprus Ministry of Finance. The formula is as follows:

Special levy for 2022 = (profits in 2022/energy sold in 2022) – €0.11 x energy sold in 2022 x 90%.

The energy sold is expressed in kilowatt-hours. The 0.11 Euro in the formula refers to the 11 Eurocents per kilowatt-hour, the current statutory ‘avoidance cost’ paid to Renewable Energy Sources (RES) traders. For companies trading in renewables and which began operations in the year 2022, the special fee will be calculated based on the average profit per energy sold in 2021 by the totality of suppliers who were commercially active in 2021.

A temporary mandatory solidarity contribution: As per Draft Bill 2 mentioned above, a temporary solidarity contribution will be made by the companies within the scope of the said Bill at 33% of the ‘excess profits’ i.e. profits in excess of 20% above the average profits of the immediately preceding four tax years.

6. Czechia

Temporary revenue cap on market revenues of producers: The Czechian government has introduced a market revenue cap which ranges between 70 Euro/MWh (for nuclear power) up to 240 Euro/MWh (for biomass power). The contribution from extraordinary revenue is applicable to 90% of such extraordinary revenue. These revenue caps will apply from 1 December 2022 up to at least 31 December 2023.

A temporary mandatory solidarity contribution: The Czechian government has recently approved a Windfall Profits Tax, as part of the income tax law. It applies to banks and companies producing, transporting or trading with electricity, producing, transporting or trading with gas fuels, producing black coal and coke and producing oil products, who satisfy the below criteria:

for banks: gross interest income in the year 2021 of at least 6 billion CZK (250 million Euro);
for companies producing gas fuels, black coal, coke, and oil products: income from these activities of at least 50 million CZK (2 million Euro) in any of the 2023 - 2025 years, if this income represents at least 25% of the total turnover;
for other companies: income from any of the above activities of at least 50 million CZK (2 million Euro) in any of the 2023 - 2025 years, and at the same time income from any of the above activities in the 2021 year is, on its own or together with other companies in the same consolidation group, at least 2 billion CZK (80 million Euro).

The windfall tax will apply at a rate of 60% on the amount by which the base in any of the 2023 - 2025 years exceeds the ‘benchmark level’ of the tax base, and the ’benchmark level’ is calculated as the average corporate income tax base for years 2018 - 2021, increased by 20%.

7. Denmark

There was a general election in Denmark on 1 November 2022. The newly elected government is expected to announce measures in the near future.

Temporary revenue cap on market revenues of producers: There is currently little known publicly available information released by the Denmark Government in respect to this.

A temporary mandatory solidarity contribution: There is currently little known publicly available information released by the Denmark Government in respect to this.

8. Estonia

Temporary revenue cap on market revenues of producers: There is currently little known publicly available information released by the Estonian Government in respect to this, but more information is expected shortly.

A temporary mandatory solidarity contribution: There is currently little known publicly available information released by the Estonian Government in respect to this, but more information is expected shortly.

9. Finland

Temporary revenue cap on market revenues of producers: There is currently little known publicly available information released by the Finland Government in respect to this, but more information is expected shortly.

A temporary mandatory solidarity contribution: We understand that Finland's government is preparing to introduce a new temporary tax on excessive profits of energy companies. However, the government has not yet published any details about the planned windfall tax.

10. France

Temporary revenue cap on market revenues of producers: There is currently little known publicly available information released by the French Government in respect to this, but more information is expected shortly.

A temporary mandatory solidarity contribution: There is currently little known publicly available information released by the French Government in respect to this, but more information is expected shortly.

11. Germany

Temporary revenue cap on market revenues of producers: On 29 November 2022, the German federal government passed a bill that would provide for the application of the market revenue cap. The draft still has to go through the legislative process and is expected to enter into force on 1 January 2023. The market cap shall commence on 1 December 2022 and shall initially expire on 30 June 2023. It may be extended beyond that date by ordinance, but not beyond 30 April 2024. Excluded from the scope of application is electricity generation (among others) by using hard coal and crude oil, as well as small renewable energy plants and CHP plants with an installed capacity of less than 1 MW.

In what appears to be contrary to the EU Commission, the German government has opted for a technology-specific revenue cap without any reference to a fixed electricity price level (i.e., in particular, no reference to the cap of 180 Euro/MWh provided for in the EU Regulation). Excess revenues are determined on the basis of hypothetical revenues and costs, with a safety margin added to the reference costs. Only in the case of PPAs and hedging transactions should the actual revenue situation, rather than the hypothetical one, be taken into account when determining the excess revenues. According to the current draft of the legislation, 90% of the excess revenues calculated in the aforementioned way are to be assumed by the German government. The remaining 10% is to be retained by the operator of the electricity generation plant in order to provide incentives for efficient market behavior.

A temporary mandatory solidarity contribution: Implementation of the EU regulation in the Law on the introduction of an EU energy crisis contribution under Regulation (EU) 2022/1854, which was passed as a part of the Annual Tax Act in the German Bundestag on 2 December 2022. Profits from the years 2022 and 2023 that are more than 20 percent above the average profit from 2018 to 2021 are to be covered. The contribution rate of 33 percent corresponds to the minimum rate of the EU regulation. The contribution is not deductible as a business expense for income and corporation tax purposes. The revenues flow into the state budget and are then used to finance energy price caps in favor of end consumers (electricity, gas, steam and heat price caps).

12. Greece

Temporary revenue cap on market revenues of producers: The Greek government has announced the application of an ex-post price cap on the wholesale market prices of different electricity generators from July 2022 onwards. The applicable cap is fixed for RES generators at 85 Euro/MWh and for Large Hydro generators at 112 Euro/MWh. For lignite and natural gas generators, the cap is variable based on the fuel and CO2 costs and is set for month ‘n’ at month ‘n-1’. Indicatively, the price cap for December 2022 is 196.5 Euro/MWh for lignite and 326.9 Euro/MWh for CCGT. The Greek Government has also announced the application of a 90% taxation on the excess gross profit (net of any discount provided to end-users) of Natural Gas, Lignite and Hydro generators for the period of October 2021 to June 2022. We expect further information on this in due course.

A temporary mandatory solidarity contribution: The introduction of a new solidarity contribution for windfall profits arising for the period after July 2022 is still under discussion.

13. Hungary

Temporary revenue cap on market revenues of producers: There is currently little known publicly available information released by the Hungary Government in respect to this, but more information is expected shortly.

A temporary mandatory solidarity contribution: There is currently little known publicly available information released by the Hungary Government in respect to this, but more information is expected shortly. Hungary does have a similar tax currently enforced (known as the ‘Robin Hood’ tax). It may be the case that this could be considered an ‘equivalent regime’ for purposes of the emergency measures regulation, but this has not been confirmed publicly at this stage.

14. Ireland

Temporary revenue cap on market revenues of producers: The Irish Government has recently announced that a cap on all market revenues will apply to non-gas electricity generators in the wholesale electricity market with a capacity of 1 MW or more from December 2022 until June 2023. A cap of 120 Euro will apply to wind and solar and 180 Euro to all other technologies. Some exclusions will apply. Detailed guidance is not yet available.

A temporary mandatory solidarity contribution: The Irish Government has confirmed a temporary solidarity contribution will apply to fossil fuel production and refining for the years 2022 and 2023. The solidarity contribution will be calculated at a rate of 75% on taxable profits which are more than 20% above a baseline (being the average taxable profits of the company, for the period 2018 to 2021).

15. Italy

Temporary revenue cap on market revenues of producers: The Italian government has not made any firm announcements in respect to a market revenue cap on producers.

A temporary mandatory solidarity contribution: In Italy the Law Decree no. 21/2022 (Taglia-prezzi Decree) introduced an Extraordinary Contribution, in the form of a solidarity levy, due by the entities operating in the energy and oil and gas sectors that realized windfall profits due to increased energy prices. The Decree was modified by the Law Decree no. 50/2022 (Decreto Aiuti) that provided for some amendments to the law provision including, inter alia, the increase of the Extraordinary Contribution rate. The taxable base of the Extraordinary Contribution is equal to the increase of

the balance of VAT sales and purchases carried out between 1 October 2021 and 30 April 2022 compared to:
the balance of VAT sales and purchases carried out between 1 October 2020 and 30 April 2021.

The Extraordinary Contribution is due only if the increase exceeds both the following thresholds (i.e. it is greater than €5 million and higher than 10%.) The Extraordinary Contribution rate applicable is 25%.

16. Latvia

Temporary revenue cap on market revenues of producers: There is currently little known publicly available information released by the Latvian Government in respect to this, but more information is expected shortly.

A temporary mandatory solidarity contribution: There is currently little known publicly available information released by the Latvian Government in respect to this, but more information is expected shortly.

17. Lithuania

Temporary revenue cap on market revenues of producers: There is currently little known publicly available information released by the Lithuanian Government in respect to this, but more information is expected shortly. The implementation of these measures are under discussion.

A temporary mandatory solidarity contribution: There is currently little known publicly available information released by the Lithuanian Government in respect to this, but more information is expected shortly. The implementation of these measures are under discussion.

18. Luxembourg

Temporary revenue cap on market revenues of producers: There is currently little known publicly available information released by the Luxembourg Government in respect to this.

A temporary mandatory solidarity contribution: There is currently little known publicly available information released by the Luxembourg Government in respect to this.

19. Malta

The Maltese Government has negotiated a derogation from the EU regulation that imposes mandatory reductions in energy consumption.

Energy and fuel prices have not increased in the past twelve months on account of subsidies advanced by the Maltese Government. In the 2023 budget announced in October 2022, the Government has renewed its commitment to continue to subsidize energy prices for the next twelve months.

20. The Netherlands

Temporary revenue cap on market revenues of producers: The Netherlands will introduce a temporary cap on market revenue of electricity producers for the period from 1 December 2022 to 30 June 2022. According to a parliamentary letter of 30 November 2022, the general market revenue ceiling is set at 130 Euro/MWh, calculated on the basis of monthly average prices. Above this ceiling, 90% of market revenue must be remitted. The cap applies to generation plants from 1 MW onwards. The legislative proposal is expected in March 2023.

A temporary mandatory solidarity contribution: Companies subject to corporate income tax in the Netherlands that derive at least 75% of their turnover (in the Netherlands) from economic activities related to hydrocarbon extraction, mining, petroleum refining or the manufacture of coke oven products, qualify as solidarity contribution payers. The basis for the solidarity contribution is excess profit in 2022, which is profit that exceeds 120% of the average profits of the previous four financial years starting in 2022. On those excess profits, a company has to pay an additional contribution of 33%. As this measure is scheduled to apply to 2022 profits, the Dutch government has chosen to introduce the levy retroactively. The legislative proposal is currently pending before the Senate and is intended to enter into force from 1 January 2023.

Other measures: For 2023 and 2024, an additional mining levy is planned, namely a temporary increase in the so-called ‘cijns’ levy. The cijns is an existing revenue based levy that is generally only applicable to the oil and gas industry.

21. Poland

Temporary revenue cap on market revenues of producers: No general market cap has been implemented, but there is a plan to introduce this kind of tax to all industries and all large enterprises. We are waiting on further information from the Polish government in respect to a cap on the market revenue of electricity producers. It may be the case that this could be considered an ‘equivalent regime’ for purposes of the emergency measures regulation, but this has not been confirmed publicly at this stage.

A temporary mandatory solidarity contribution: The industry specific tax (called the ’special write off for mechanism of electricity price regulation’) will apply towards entities involved with electricity production (with some exemptions). The mechanism applies to all producers of electricity from wind, solar, geothermal, hydro, biogas, agricultural biogas, biomass, bioliquids, waste, lignite, liquid fuels, hard coal and gas fuels. Under the cap, they will be obliged to calculate and pay an amount for the benefit of the price difference payout fund. The base for calculating the amount to be paid is the product volume of electricity sold and the positive difference of the volume-weighted average market price of electricity sold and the volume-weighted average cap price of electricity sold.

In addition, there is a plan for the introduction of a general windfall taxation on profits of the State Treasury companies and private enterprises. The proposed tax is expected to apply at a 50% rate on the windfall profits (understood as the difference between average profits margin for 2018, 2019, 2021 and gross profit margin for 2022). We note 2020 is expected to be excluded due to the Covid pandemic. However, those discussions have been suspended for the time being.

22. Portugal

Temporary revenue cap on market revenues of producers: There is currently little known publicly available information released by the Portuguese Government in respect to this.

A temporary mandatory solidarity contribution: There is currently little known publicly available information released by the Portuguese Government in respect to this.

23. Romania

Temporary revenue cap on market revenues of producers: The Romanian Government enforced a reference price for electricity producers at 450 RON/MWh (92 Euro/MWh) as of 1 September 2022, through the Government Emergency Ordinance (GEO) 119/2022.

In addition, Romania has also enforced a ‘Solidarity Contribution’ for electricity producers/generators from 1 September 2022 through GEO 119/2022. The Solidarity Contribution is determined under the formula where the monthly electricity selling Price (Pms) is greater than 450 RON/MWh and is calculated as the product between: (1) the difference between the Pms and 450 RON/MWh and (2) the monthly sold/delivered quantity – (Qms).

In November 2022, another GEO was approved, GEO 153/2022, which established a centralized mechanism for the purchase of electricity (a share of the total electricity produced in Romania will be sold through this mechanism). The selling price (which is a fixed price) was set at 450 RON/MWh (92 Euro/MWh). The mechanism will be enforced from 1 January 2023 until 31 March 2025. The Solidarity Contribution formula presented above has also been adjusted within the new GEO.

It is yet to be seen whether the existing regime could be considered an ‘equivalent regime’ for purposes of the emergency measures regulation. This may be the case, however, it will be a decision of the Romanian government and the EU as to whether this regime could satisfy the necessary requirements (and we are yet to see any public comments in this regard).

A temporary mandatory solidarity contribution: In respect to the 33% solidarity contribution adopted within the EU Regulation there has been little to no publicly available information on this matter.

24. Slovakia

Temporary revenue cap on market revenues of producers: The government has prepared draft legislation which will introduce a special levy of 90%, which will be levied on excessive profits generated by electricity businesses due to high energy prices.

A temporary mandatory solidarity contribution: The government has approved (on 30 November 2022) draft legislation which will introduce a special tax of 70% to be levied on excessive profits generated in the business related to extraction and processing of oil and natural gas.

25. Slovenia

The legislative framework for both the below measures (revenue cap and solidarity contribution) was just confirmed by the Slovenian Government (on 1 December). However, the law in question (i.e. Zakon o ukrepih za obvladovanje kriznih razmer na področju električne energije) still has to be confirmed by the Parliament, which shall likely happen in the course of December.

Temporary revenue cap on market revenues of producers: The Slovenian government has confirmed plans to implement a EUR 180 MW/h price cap, in accordance with the regulation. Its anticipated revenues from the sale of electricity manufactured and sold on the gross market in Slovenia that exceed EUR 180 MW/h, will be included in the State budget that will ultimately be used to subsidize electricity users and counter the effects of the current high energy prices crisis.

A temporary mandatory solidarity contribution: Companies that perform business activities in the area of oil and gas shall be subject to a special solidarity contribution in 2022 and 2023 that shall be calculated as the difference between the profits achieved in a singular year (2022 and 2023) and the average profit of the respective companies in the period from 2018 and 2021, increased by 20%.

26. Spain

Temporary revenue cap on market revenues of producers: In Spain there is an existing measure for market revenue reduction, which has been extended until 31 December 2023 for infra-marginal production facilities unless they enter into a fixed-price contract (of more than 1 year) equal to or lower than 67 Euro/MWh.

A temporary mandatory solidarity contribution: There is currently a proposal before the Spanish Senate to establish the temporary levy. It is expected to apply to electricity, oil and gas, coal and oil refining companies and may apply an additional tax of 1.2% to annual turnover, instead of extraordinary profits. It is expected to apply to the net amount of turnover, excluding those of the so-called ‘regulated activities’ and certain taxes such as the hydrocarbon tax. It may be that this temporary levy is considered an ‘equivalent regime’ for purposes of the Regulation, but this has not been confirmed.

27. Sweden

Temporary revenue cap on market revenues of producers: There is an ongoing legislative project at the Ministry of Finance, but national legislation will not be in place until 1 March 2023 at the earliest, according to a press release from the Ministry of Finance. In the same press release it is stated that the revenue cap will not apply in Sweden from 1 December 2022.

A temporary mandatory solidarity contribution: We expect a solitary contribution to take effect from 1 January 2023. It is expected to apply at a rate of 33% on 2022 profits in excess of 120% of the reference period average, and is expected to apply in addition to the normal Swedish company tax rate of 20.6%. We expect this to be legislated in December 2022.

What's next?

We would expect many of the EU Member States to further confirm their implementation of the Regulation over the coming weeks and early in 2023.