EU court rules against Czech tax on carbon permits

[February 26, 2015] By Jan Lopatka

PRAGUE (Reuters) - A Czech tax imposed in 2011 and 2012 on carbon emission allowances granted to companies for free breached a European Union directive, the European Union's Court of Justice ruled on Thursday.

The ruling was made at the request of a Czech court which is considering an appeal of an electricity producer, Sko-Energo, against the tax, but a similar claim to get the gift tax back was made by the country's biggest energy firm, CEZ.

Under the EU's Emissions Trading Directive, companies were awarded at least 90 percent of each member state's permits for carbon emissions for free in 2008-2012.

The court ruled the Czech tax, introduced in 2011 and set at 32 percent, was at odds with the directive in light of the 10 percent ceiling for allocation of credits for money.

The government raised 7.4 billion crowns ($306 mln) in the period which were meant to fund growing subsidies to solar plants.
 

"The Court observes that, in the light of the 10 percent ceiling on the allocation of allowances for consideration, the directive precludes not only the direct fixing of a price for the allocation of emission allowances but also the subsequent levying of a charge in respect of their allocation," the court ruling said.

"Consequently, the tax at issue, levied following the allocation of the allowances, is incompatible with the directive to the extent that it does not respect that ceiling; that is a matter for the national court to determine."

The European court does not rule on the case itself, but interprets EU law at the request of national judiciary. The Czech Supreme Administrative Court is to rule on the dispute.

The Czech finance ministry said the legality of the tax would be decided by the court.

Electricity producer CEZ, 70 percent state-owned, said it had followed Sko-Energo and claimed back 5.3 billion crowns in taxes it paid on allowances it was given.

"CEZ understood the reasons why the state introduced this tax, but under legal norms it must protect the firm's interests in a way that shareholders are not damaged," CEZ spokeswoman Barbora Pulpanova said.

"CEZ was therefore obliged, following the example of Sko-Energo, to file a supplementary tax return in the past on the gift tax."

CEZ however said it did not presume at this point how the court's ruling would be transponded into Czech law.

(Editing by David Evans)

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