Weekly Tax News - 5 September 2022

September 5, 2022

EU searches for solutions to soaring energy prices before winter

 As summer is ending, the EU is searching for solutions to protect consumers from exploding energy bills this winter. The Czech Presidency of the Council of the European Union has convened an extraordinary meeting of Member States’ energy ministers this week, on 9 September, to discuss potential measures aiming to fight surging energy prices exacerbated by the Russian invasion of Ukraine. Several countries are calling on the EU to decouple electricity prices from gas prices. In view of this meeting, the European Commission has reportedly prepared recommendations. According to the Commission, emergency measures should consist of a package of three interrelated components: - coordinated reduction of electricity demand; - price capping for sub-marginal power generation technologies; - national measures to support consumers. These recommendations will be discussed by energy ministers, which should grant the Commission a mandate to prepare emergency measures. On a longer term, the Commission also reportedly intends to put forward a legislative proposal to reform the EU electricity market in early 2023.

IMF pleads for permanent energy windfall taxes

Policymakers should introduce a permanent tax on excess profits that fossil fuel companies make rather than temporary ones, according to a note published by the International Monetary Fund (IMF) on Tuesday 30 August. The surge in fossil fuel prices, arising from the economic recovery from COVID-19 and amplified by the Russian war in Ukraine, has generated substantial windfall profits in the energy sector. Many EU countries – most recently Belgium - have decided to tax these windfall profits or are considering to do so. In its note, the IMF is warning about the introduction of temporary taxes on windfall profits, which tend to increase investor risk and may be more distortionary. “Investors prefer a stable, predictable tax regime over the risk of future temporary taxes when prices rise”, it added. It therefore recommends to governments to introduce a permanent windfall tax that should apply to a clear measure of excess profit that avoids arbitrary references to specific price levels or time periods. The tax should not apply to revenue as this can be inflationary and is more likely to reduce investment, it explained.

German Chancellor Olaf Scholz in favour of ending unanimity voting on taxation

In a speech at Charles University in Prague on Monday 29 August, German Chancellor Olaf Scholz advocated a progressive shift from unanimity to qualified majority voting in the fields of taxation and EU diplomacy. Mr Scholz said Germany is in favour of EU enlargement to thirty or thirty-six members, including the Western Balkan countries, Ukraine, Moldova and even Georgia. But in order to welcome new countries into the EU, the EU must start a process of internal reform now, he said. The enlargement would increase disparities and unanimity will be even harder to achieve and could create a lot of different rules and complicated opt-ins and opt-outs, he reportedly stressed. The Chancellor also mentioned the idea of reforming the composition of the European College of Commissioners and of the Parliament so that the institutions don’t become overcrowded, he added.

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