Estonia opposes European Commission energy company tax proposal

VKG shale oil plant.
VKG shale oil plant. Source: Rene Kundla/ERR

The Estonian state has said it does not support a European Commission proposal to install a windfall tax on energy companies, as a measure aimed at alleviating the current energy crisis.

The commission says the move would bring "solidarity" from businesses towards struggling customers, and would pertain primarily to fossil fuels, while, Estonia's representatives say, an accompanying price cap on non-carbon or low-carbon generators would also affect the renewables sector here.

The Estonian Ministry of Finance says that, since introducing taxes retroactively is not viable under domestic law, any such measure should be voluntary for the companies in question.

Minister of Economic Affairs and Communications Riina Sikkut (SDE) said: "We do not consider this to be reasonable and fair. It is not a solution for Estonia, it is not realistic to implement it."

Evely Liivamägi, Ministry of Finance Deputy Secretary General said: "In our opinion, such solidarity essentially amounts to a tax, and in Estonia, taxation must be established by law. This cannot be established retroactively. This means our desire for the commission is that the measure be voluntary for member states. Subsequently, if we wish to introduce a tax in some way, we can do it in the manner as prescribed by Estonian laws, and the Constitution."

The corporate profit tax would potentially have affected two major companies engaged in the oil shale refining sector and related areas, namely Kiviõli Keemiatööstus and the Viru Keemia Grupp (VKG).

Board chair of the latter, Ahti Asmann, said: "The commission's proposal does not stand up to any criticism in a legal sense. The number of problems can be listed as ex post taxation, subsidiarity, proportionality. There is likely a contradiction with the Constitution here also. Most important, tax issues must lie within the competence of the member states."

VKG's shale oil prices are considerably cheaper than natural gas and as such are a solution to a problem, not the problem itself, Asmann noted.

Under the scheme, fossil fuel extractors , ie. oil and gas firms, would be asked to return 33 percent of taxable surplus profits for the 2022 fiscal year, while member states would be free to set even higher rates if they wished, while low-carbon electricity generators – which in Estonia would concern renewables - would have their revenues capped at €180 per MWh, about half current prices and a move which minister Sikkut also rejects.

The cabinet will make a final decision at its next regular scheduled meeting next Thursday, which happens to be the day before a meeting of EU energy ministers.

Estonia is not alone in criticizing the proposal, Liivamägi noted, adding that only a small number of member states would find all the proposals amenable.

Non-EU member Britain currently has a windfall tax on oil and gas companies in place, set at 25 percent, though Prime Minister Liz Truss is reportedly facing pressure to extend it further.


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Editor: Andrew Whyte

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