On 30 September 2022 the Council of the European Union discussed and adopted a draft EU extra tax regulation aimed at the energy sector. Under the regulation, member states will receive, as budget revenue, part of the windfall profits generated by the energy sector. For Hungarian operators, the legislation is particularly important in view of the windfall taxes introduced for renewable energy producers in June 2022.
The “extra tax” under the EU regulation
The EU regulation adopted on 30 September 2022 gives member states the possibility to cap the revenues generated by electricity producers (including wind and solar power plants producing renewable energy) and channel the excess revenue to the central budget. The regulation caps the market revenues realised by electricity producers at EUR 180 per MWh of electricity generated. Although the text of the regulation does not categorise the measure as a tax, its function is the same as that of the windfall taxes introduced in Hungary in response to the economic turmoil and war situation. The legislators’ stated aim is to ensure that producers, who are indirect beneficiaries of the current energy market situation because they benefit from the profits on increased electricity prices without increasing their costs, contribute to the state budget. Member states are obliged to use the revenue thus obtained to finance measures that support end-users of electricity and alleviate their burden. The precise way in which the regulation will be implemented in Hungary is still open to question, as the regulation does not contain explicit provisions on this matter.
Windfall tax on METÁR and KÁT producers
From June 2022 Hungary levies a windfall tax on producers with a KÁT or METÁR licence whose production capacity exceeds 0.5 MW and who have not concluded a subsidy agreement with MAVIR for 2022 or such agreement has been terminated. In view of the state of war emergency, the government imposes a 65% windfall tax on those producers who did not enter into the subsidy agreement. For producers with a KÁT licence the tax is based on the difference between the revenue derived from the energy generated each month and the revenue due under the KÁT regime, while for producers with a METÁR licence the tax base is the quantity of electricity generated in the given month multiplied by the positive difference between the sales price (unit price) under the electricity trading contract concluded by the producer on a market basis and the METÁR price for the given year. In other words, what the subsidised producers realise above the subsidy is considered by the state as extra revenue. It should be noted that in addition to the windfall tax, these producers are also subject to another extra tax, the so-called Robin Hood tax, which reduces their pre-tax profit.
In a sea of extra taxes?
It is currently unknown how – given the existing Hungarian windfall tax regime – the Hungarian state will enforce the extra tax under the EU regulation against electricity producers with a KÁT or METÁR licence. It remains to be seen whether the rules on the windfall tax will be amended or the required revenue cap will be introduced as a new tax. In theory, the latter is an option for member states, as the regulation authorises member states to maintain or introduce measures that further limit the market revenues of producers, provided that such measures are proportionate and non-discriminatory, do not jeopardise investment signals, ensure the recovery of investment costs, do not distort the functioning of the wholesale electricity market and are compatible with EU law. What is certain is that producers with a KÁT or METÁR subsidy agreement will also be excluded from the scope of the new regulation (they do not have to pay the Hungarian windfall tax, either), as the draft regulation does not apply the cap to producers whose revenue per MWh is already curbed by state measures. In the case of producers who have not taken advantage of the state subsidies, however, the harmonisation of Hungarian extra taxes will require a more thorough reconsideration once the EU rules are introduced.