Background: EU Council Regulation 2022/1854
On 6 October 2022, the Council of the European Union (EU Council) adopted Council Regulation 2022/1854 on an emergency intervention to address high energy prices (the Regulation), which contains several measures related to the current situation on the EU energy market. One of these measures is the introduction of a price cap on market revenues for certain electricity producers. The draft legislative proposal, published for consultation by the Dutch government on 27 January 2023, concerns a levy on market revenues from inframarginal electricity production (inframarginal levy) and constitutes the Dutch implementation of the price cap. We have outlined the key elements of the draft legislative proposal below.
Draft legislative proposal inframarginal levy
The structure of the draft legislative proposal largely corresponds to the plans that were presented by the Dutch government to the Parliament in a letter dated 30 November 2022 (please refer to our prior website post). In short, the inframarginal levy applies to electricity producers using a generating facility with a capacity of at least 1 megawatt that generates electricity using an inframarginal energy source or coal. Inframarginal energy sources include wind, solar, hydropower, solid biomass, biogas, waste and nuclear energy. The threshold of 1 megawatt corresponds to about 3,000 solar panels and most modern wind turbines.
The electricity producer is defined as the party for whose account and risk the generation takes place. This does not necessarily have to be the legal owner of the generating facility (e.g. in case of lease of a facility). In addition, the 1 megawatt threshold applies per generating facility and not per electricity producer (e.g. a generating facility may have multiple owners). The generating facility’s own electricity consumption is not relevant in determining whether the 1 megawatt threshold is met, although own electricity consumption is taken into account in determining market revenues (please see below).
Taxable base and tax rate
The taxable base of the inframarginal levy is formed by market revenues in EUR/MWh. Market revenues above an exempt amount of, in principle, EUR 130/MWh are taxed at a rate of 90%. This calculation takes place monthly, but the tax is payable only once at the end of the taxable period. Moreover, the inframarginal levy only applies to realized market revenues, meaning that hedges are taken into account.
For (solid and gaseous) biomass fuels, excluding green gas, the legislative proposal sets the exempt amount at EUR 240/MWh. The legislative proposal also includes a specific method for the calculation of the exempt amount for the sale of electricity from coal. Furthermore, for production installations that receive SDE-subsidy with a specific amount (the fase-, basis- of tenderbedrag) above EUR 130/MWh, the exempt amount will be set at that amount.
Market revenues are defined as revenues from agreements to sell electricity on the Dutch electricity market, whereby negative revenues from agreements to purchase electricity on the Dutch electricity markets – to meet the aforementioned sales obligations – are also taken into account. Specific rules apply for groups of companies where there is a supply of electricity within the group. It is important to note that the calculation of market revenues is based on revenues and not on costs (fixed and variable) or profits.
As to the taxable period, the legislative proposal refers to the period as included in EU Council Regulation 2022/1854 (i.e. 1 December 2022 to 30 June 2023). This entails that the inframarginal levy will be implemented with retroactive effect. The inframarginal levy functions as a declaration tax (like VAT); the producer must have filed its tax return and paid the tax due by 1 June 2024. In case of a group, only the ultimate group company files the declaration. Joint liability regarding the tax due applies for the entire Dutch group or all members of a fiscal unity for corporate income tax purposes.
Responsibilities around the inframarginal levy lay with both the Dutch tax authorities (DTA) and the Emissions Authority (NEa). Inviting producers to file a tax return, the processing of the tax returns and the collection of the inframarginal levy is done by the DTA. Furthermore, the producer must prepare and submit a "market revenue report" to the DTA by 1 June 2024. Such report contains the data relevant for the basis of the inframarginal levy, such as market revenues and electricity sold/purchased. In case of a group, the Dutch ultimate group company prepares a report for the group.
Comments on the consultation can be submitted until 16 February 2023. It is expected that a final legislative proposal will be presented to Parliament this spring. The envisaged entry into force date would then be 1 July 2023 with retroactive to 1 December 2022.
Please note that the draft legislative proposal may be subject to further amendments by both the government and Parliament.
Feel free to reach out in case you have any questions regarding the above.