Krogerus Tax' regulatory update: The Government's proposal for the temporary Windfall Tax Act approved with modifications
The proposal for the temporary Windfall Tax Act for enterprises operating in the electricity and fossil fuel sectors was approved by the Finnish Parliament on 27 February 2023 in an amended form. An overview of the Government's proposal can be found in our previous article on the subject.
The Windfall Tax Act has been adopted for the purpose of implementing the revenue cap and the solidarity contribution set out in the Council Regulation (EU) 2022/1854 of the European Union. In addition, the Act is also partly based on the Finnish Government's budget negotiations in Autumn 2022 in which it was agreed that a national windfall tax is prepared to mitigate the impact of high energy prices.
The Windfall Tax Act will be applied retroactively to the tax assessment of tax year 2023. If the financial year of a company liable to the windfall tax does not end during calendar year 2023, the law is applicable to the tax assessment of tax year 2024.
In the electricity sector, the windfall tax will be levied at the rate of 30% on the company's electricity business operations' profits that exceed 10% of the equity in the preceding year's differentiated balance sheet for electricity business operations. For companies primarily operating in the fossil fuel sector, the applicable tax rate will be 33% and the tax will be levied on the company's profits that exceed 120% of the company's average profit from 2018 to 2021.
The Act is applicable to companies operating in the electricity industry if the company's revenue derived from its electricity business operations is EUR 500,000, at the minimum. Pursuant to the Act, electricity business operations refer to the production and sale of electricity. It is notable that the transmission of electricity is not subject to the windfall tax. The Government's proposal included an additional provision according to which the Act would also have been applicable to companies the revenues of which entail a minimum of a 10% proportion from electricity business operations. Said provision was not, however, included in the approved proposal.
In addition to the above-mentioned modification, certain other revisions concerning intra-group electricity operations and mutual companies producing electricity (Mankala companies) were implemented in the approved bill.
Please do not hesitate to reach out to our tax professionals should you wish to discuss the effects and possible mitigation measures of the windfall tax.