European countries join Europe’s “solidarity contribution”

Energy - January 13, 2023

The so-called solidarity contribution was a measure agreed at the European level on the profits of energy companies in the context of the crisis caused by the Russian invasion of Ukraine. This tax was to be calculated on the basis of the surpluses of companies involved in crude oil, natural gas, coal or refineries. The EU rule obliged member states to maintain national measures at levels equivalent to the solidarity levy and to use the proceeds to mitigate the effects of the energy crisis and to support households and businesses suffering from its consequences.

The latest country to join the European measure is Romania, which is already planning to introduce a 60% tax on the profits of energy companies in the country. Parliament must approve the measure, which has been drafted as a bill by the Ministry of Finance. Bucharest intends to collect “windfall profits” from energy companies whose surpluses in 2022 and 2023 exceed by 20% the profits made between 2018 and 2021. Romania, like Spain and Italy, has focused the tax on electricity generating companies, while countries such as the UK focus the tax on oil and gas companies. In the summer, the UK announced a temporary “energy profits levy” of 25% of the profits of oil and gas companies.

On the other hand, Italy included in the 2023 Budget Law approved in June an increase of 25% in the tax on extraordinary profits of energy companies, which, until then, had been maintained at 35%. The measure will be in force until July 2023 to help finance the aid package for companies and consumers with the aim of alleviating the escalation of electricity and fuel prices. “The budget adjustment law is based on a prudent and realistic approach that takes into account the economic situation, also in relation to the international scenario, and at the same time sustainable for public finances, concentrating a large part of the available resources on interventions to support households and businesses to counteract expensive energy and rising inflation,” announced the Meloni government’s official statement.

The tax, therefore, will be imposed on the “net profit” of companies, following the parameters set by the European Union, retroactively from October 2021 to April 2022, since Italian companies, such as the oil company Eni, quadrupled their surpluses in a single year, recording a profit of around 3.6 billion euros.

Another example of these measures has been Portugal’s approval of a temporary tax on the extraordinary profits of energy companies, and the peninsular country has also included the distribution sector in the collection list. The tax will be 33% for companies that have made profits above 20% of the average of the previous four years. However, the Portuguese government has not included small and medium-sized companies with a turnover of no more than 100 million euros per year in these measures.

However, the hardest country to implement these measures has been Hungary, which has included banks, telecommunications companies and airlines, as well as the energy sector, in the obligation to pay the extraordinary tax. Thus, the Hungarian government aims to collect 2.08 billion euros in 2023, added to the 2.04 billion expected for 2022, which will amount to 1.15% of GDP that will be allocated to the most affected sectors of society. “Inflation is growing, we have to fight back to control the state debt and the budget,” explained Márton Nagy, Hungary’s minister of economic development.