Windfall tax – a way to tax excess profits earned in connection with the energy crisis
The European Commission is working on a windfall tax to be imposed on excess profits. Recently, our national version of this tax has been presented by the Ministry of State Assets. The aim of the planned levy would be to combat the ongoing economic crisis, in particular the energy crisis. Money obtained from the windfall profit tax would be re-directed to local governments, sensitive institutions such as preschools, schools and possibly also to micro-, small and medium-size enterprises.
What are the assumptions?
According to the original, unofficial proposals of the Ministry, the tax would apply to large enterprises. Two criteria are of significance to determine the size of an enterprise within the meaning of the EU regulations:
- Employment below 250 people (if this condition is not satisfied, an entity, in principle, will be considered a large enterprise);
- the annual turnover not exceeding 50 million euro, or the annual balance sheet total not exceeding 43 million euro (if the employment-related condition is met while one of the said financial criteria is not satisfied, the entity, in principle, will be considered a large enterprise).
Thus, the tax would not apply to the SME sector, i.e. entities employing fewer than 250 people and meeting one of the above financial conditions.
As regards the capital groups, the tax would apply to consolidated results for the entire capital group, according to the balance-sheet regulations. The tax would be reduced for enterprises which undertake substantial investments.
The plans announced by the Ministry give rise to justified doubts among entrepreneurs: the subjective scope of the tax is broad (unlike the scope proposed by the European Commission, which plans to impose the tax on energy companies only).
What is the planned taxable base?
To determine the taxable base, it will be necessary to calculate the gross profit margin for 2022. The obligation to pay the tax would apply to entrepreneurs whose profit margin for 2022 is higher than the average gross margin for 2018, 2019 and 2021. (2020 was excluded due to COVID-19). The excess would be taxed at 50%.
Is it a bill?
As of now, the bill has not been published yet. As the Ministry has recently informed, the specific regulations governing the tax on windfall profits should be ready within two weeks. At the same time, the final form of the planned tax has not been established yet, because the government is waiting for the EU guidelines. This may mean that the proposals presented by the Ministry will be alleviated.
We shall keep you regularly informed on the subsequent stages of the works over the draft regulations. Should you have any doubts, you are welcome to contact our experts.
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