EU Advocate General says windfall taxes on energy companies are allowed

Brussels – Taxing energy companies’ windfall profits is possible. The measure “is consistent with EU law”, provided that the tax regime is “temporary” and exceptional in nature. This is the view of Advocate General Athanasios Rantos, in a legal opinion for the Court which, if upheld by the judges in Luxembourg, could pave the way for governments to tax companies, a measure being considered to counter rising fuel and energy prices. 

The Advocate General’s interpretation of the law submitted to the Court of Justice is part of the dispute arising from the solidarity levy introduced at the EU level in the wake of price rises triggered by the outbreak of the war in Ukraine. The constitutional courts of Italy, Belgium and Ireland have challenged this decision. The Italian court wishes to know whether the taxation of windfall profits also extends to distribution companies; the Belgian court has doubts as to its compatibility with state aid rules; and the Irish court has concerns regarding the principle of proportionality.

It is the Advocate General’s view that Article 122(1) of the Treaty on the Functioning of the EU provides the legal basis for introducing taxes on windfall profits. The article in question provides that “the Council, on a proposal from the Commission, may decide, in a spirit of solidarity between Member States, upon the measures appropriate to the economic situation, in particular if severe difficulties arise in the supply of certain products, notably in the area of energy.”

Secondly, the judge argues, EU and national law “does not prevent Member States, within the scope of
their fiscal competences, from extending the contribution to other entities, in particular those that have benefited from
windfall energy profits due to the specificities of their energy market.” This, however, “provided that the overall burden and objectives of
the national measures remain equivalent to those of the EU regulation.” 

As for the tax on windfall profits per se, this is a levy that “does not call into question the right to property or the freedom to conduct a business” and applies “only to the exceptional revenues of (energy) companies”, which they would not have received under normal circumstances.

Based on these considerations, the Court of Justice of the EU will now have to rule. The Advocate General’s opinions do not imply that the Court will confirm the structure, approach, and interpretation of the law. The Luxembourg judges could still overturn the Advocate General’s opinion. For now, however, it strengthens the political momentum behind moving ahead with such a measure.