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Council approves the EU-wide energy levy without unanimous consent

At a special Council meeting on September 30, energy ministers reached an agreement on measures, including a windfall tax on fossil fuel firms, to reduce the high cost of gasoline.

Following ministers' political agreement on due process on Friday, September 30, the Energy Council adopted a concerted approach to reduce demand for oil and gas.


The proposed legislation on coordinated action lowers the demand for power in the EU and redistributes the extra money earned by the energy industry to consumers. A revenue ceiling for power providers and a levy on fossil fuel companies for solidarity contributions are among the elements in the plan.


The income ceiling for the generation of electricity is €180 ($176.4) per megawatt hour, and the tax rate on the earnings of fossil fuel companies is 33% higher than the average profit levels seen over the previous five years.


Despite opposition from Poland, Portugal, and Spain, the Council approved the action fast compared to other tax-related items, according to Benjamin Angel, director of direct tax at the European Commission in Brussels.

According to him, "the solidarity contribution and revenue cap will help finance actions to contain energy costs."


In accordance with Article 122 of the Treaty on the Functioning of the European Union, the European Commission initially proposed legislation on September 13 to generate €140 billion ($139.6 billion) through a tax on solidarity contributions. Article 122, which expresses member states' solidarity in times of crisis, permits exceptional measures to be passed without unanimous consent.


Regarding how to approve other significant measures in the Council, such as the EU directive on a minimal corporate tax, Angel stated, "this may also set an important precedence on tax matters."


In order to help companies with increasing energy costs, member states are depending on the EU's energy pricing toolbox, which the Commission unveiled in October 2021, as well as a temporary state assistance framework.


The solidarity donation is a unique and purely transient action. On top of the standard taxes that oil and gas businesses must pay, it raises the average annual taxable income of energy corporations by 33% as of 2018. The legislative proposal's Articles 14 and 15 set forth the rules controlling the tax.


According to Article 14, solidarity payments for businesses and facilities with operations in the production of crude oil, natural gas, coal, and refined products are determined based on taxable income under national regulations for the fiscal years 2022 and 2023. The average taxable profit for computing the temporary solidarity contribution is zero if the average of the earnings since January 1, 2018, has been negative.


According to Article 15, the tax calculation rate must be at least 33% of the Article 14 basis.


However, experts claim that the huge multinational corporations will not be much impacted by the solidarity payment assessed on the excess earnings of EU energy businesses. PKN Orlen, Repsol, TotalEnergies, and CEPSA are a few of the businesses with the highest tax burdens.


The rise in gas and oil costs amid inflation and the ongoing war between Russia and Ukraine has put enormous pressure on energy suppliers to pay more taxes.


On September 20, even UN Secretary General Antonio Guterres spoke in favor of energy windfall taxes to aid those who have been negatively impacted by the environment. Guterres criticized fossil fuel firms as global temperatures increased and a portion of Pakistan the size of the United Kingdom was submerged.


The largest benefit to the European market from hastening the legislative proposal's ratification is that energy businesses would now confront a unified approach to taxation sector windfall gains rather than market distortions that might reduce investor confidence. By fLEXI tEAM

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