Energy crisis – recent measures to deal with the exploding energy prices

The explosion of energy prices and disruptions to energy supplies, resulting from geopolitical tensions, have urged both the EU and its Member States to take several actions and propose various measures, like fiscal, social and economic incentives, to address the problem and help EU industries and citizens to tackle the rise in energy prices.

Recent measures include the EU-wide temporary “solidarity contribution” (so-called “windfall tax”) which will be levied over the "surplus taxable profits" of companies in the oil, gas, coal and refinery sectors and a revenue cap on companies generating low-cost electricity from wind, solar or nuclear sources. Therefore, it is important for companies to closely monitor and understand both EU and national (regional) measures which will have an impact on their operations.
 

Energy taxation and VAT measures

In order to partially compensate the high energy prices, the Belgian federal government has put forward some important changes in relation to energy taxation, particularly excise duties and VAT.

In first instance, the excise duties on natural gas and electricity for business use will be reduced during November and December 2022. For natural gas, the excise duty rate will be reduced to the EU minimum during those two months for consumption up to 50.000 MWh. For electricity, the special excise duty is set at the minimum for two months and this for electricity consumption up to 1.000 MWh.

In addition, the Belgian federal government also agreed to permanently reduce the VAT rate levied on gas and electricity from 21% to 6%. Once the energy prices start decreasing, this will compensated by higher excise duties in accordance with the so-called “cliquet mechanism”. This mechanism is already in place for certain oil products and will be expanded to natural gas and electricity as from April 2023.

By introducing the “cliquet” mechanism for natural gas and electricity, the Belgian Authorities dispose over a more agile instrument to react to price decreases (the excise duty rates will be increased whenever energy prices drop below a minimum threshold).

Besides these new fiscal incentives, it is still important for businesses to verify whether they are eligible for the existing excise duty exemptions. When the Belgian government at the beginning of 2022 abolished the federal contribution and replaced this with the more agile mechanism of excise duties on natural gas and electricity, various companies successfully applied for an exemption of these increased excise duty rates. The available exemption / reduction schemes are based on the source or the usage of the concerned energy products or may be granted in case a company disposes over a regional environmental permit license.
 

Economic incentives and subsidies

The European Commission adopted a Temporary Crisis Framework to enable Member States to use the flexibility foreseen under State aid rules to support the economy in the context of Russia's invasion of Ukraine. Linked to the Temporary Crisis Framework a number of measures have been established by the Flemish and Walloon Government.

In order to support healthy companies that are now suffering from the rise in energy prices and thus struggle to maintain employment, production and purchasing power of employees, the Flemish Government has developed a support package for companies. The package amounts to a two-track approach in which, in the first place, the additional energy costs are compensated, and the bridging loan is extended. Secondly, there will be an impulse program to accelerate the energy transition at companies.

The aid provided to compensate the energy costs is granted to companies that were healthy before the energy crisis and are currently suffering operational losses due to the higher energy costs. The support package provides a subsidy of 25% on the additional energy cost, limited to 80% of the operating loss and up to a maximum of 500.000 euros per quarter. For more energy-intensive companies, the support amounts to 30% on the energy additional cost, limited to 80% of their operating loss and up to a maximum of € 4.000.000 per quarter. Companies in sensitive sectors can benefit from a support of 35% on the energy additional cost, limited to 80% of their operating loss and up to a maximum of € 7.500.000 per quarter. 

The budgetary conclave of the Walloon government, resulted in a variety of decisions to assist citizens and businesses in the face of exploding gas and electricity bills. For businesses, it is a mobilization of 175M EUR over the final quarter of 2022 and - if the crisis continues - the first quarter of 2023.

The intervention will be based on the difference between the bill for the current period (the trimester) and double the bill for the corresponding period of the preceding year. The business will also have to justify the intervention by a quantitative decrease in the operating profit.

Finally, the intervention rate will consist of 25 to 35% capped - depending on the business's degree of energy dependency - at 500k to 7.5M EUR. As soon as the purchase of energy products represents at least 3% of the value of production, the intervention reaches 30%, with a ceiling of EUR 4 million. It can even reach 35% for a maximum of 7.5M EUR for very energy-intensive sectors.
 

Social measures

The Belgian government also put forward some social measures in order to deal with the high energy prices.

First of all they allow companies that have difficulties to pay the social security on the wages of their employees spread over a longer period of 24 or even 48 months.

A second measure is related to the temporary unemployment due to the energy crisis. The measures are similar to the Covid-19 temporary unemployment and will be applicable as of October 1, 2022 till December 31 2022. Employees that will be on temporary unemployment due to the energy crisis will receive 70% of their salary and an additional premium of EUR 6,22 will be granted on a daily basis.

Related to the temporary unemployment, the Belgian government also foresees a bridging right for self-employed persons who have to close their business due to the high energy prices. These self-employed persons can benefit from the 3th pillar of the classical bridging right (event with economic impact). The benefits received due to this classical bridging right are considered as compensations for the loss of profits, remuneration of employees and company directors. The compensation will be seen as replacement income and taxed at the progressive tax rates with a possible tax reduction.

And finally, the government also included a moratorium on bankruptcies until March 31, 2023 for companies affected by the energy crisis. Creditors will not be able to claim their debts from the debtor. With this measure the government wants to avoid multiple bankruptcies.

The specific conditions related to the above mentioned social measures are not yet fully implemented. As soon as more relevant information is available, we will inform you accordingly.
 

Windfall tax and revenue cap on inframarginal electricity producers

The EU recently approved a first package of emergency measures in an effort to mitigate soaring energy prices. These measures are summarized below and should be considered in combination with similar (or even broader) national measures which are currently being proposed. 

Both EU proposals are deemed to raise more than 140 billion euros for the Member States, which should be used to help businesses and households.
 

Solidarity contribution (windfall tax)

One of the approved measures includes a windfall tax on certain energy companies who have generated “abnormally high” profits during the energy crisis. A so-called EU wide temporary ’solidarity contribution’ (effectively a windfall tax) will be levied on the surplus profits of certain targeted energy companies. This contribution should act as a redistributing measure and would mainly focus on companies with activities predominantly in the crude petroleum, natural gas, coal and refinery sectors.

The basis for calculating this contribution would be the profits generated by in 2022 and/or 2023 and which are above a 20% increase of the average taxable profits generated in the four previous years. The rate applicable for calculating the temporary solidarity contribution should be at least 33%. Member States are however free to apply a higher rate.

Specifically for Belgium, the federal government will impose a “solidarity contribution” on different companies within the petrochemical industry as well as on the natural gas transmission grid operator (Fluxys). The exact modalities of this Belgian windfall tax are currently being determined, but are supposed to generate approximately 900 million euro in total.
 

Revenue cap on inframarginal electricity producers

Inframarginal electricity producers produce electricity from mainly renewable and nuclear sources and provide electricity to the grid at a cost below the price level set by the more expensive “marginal” producers (producing electricity from natural gas).

For inframarginal electricity producers, the EU-wide measure would temporarily apply to limit the revenues that electricity generators could earn from producing electricity from sources that are cheaper than the current price-setting technologies to a maximum of €180 per MWh of electricity produced.

This cap shall apply to market revenues produced from wind energy, solar energy, geothermal energy, hydropower without reservoir, biomass fuel, waste, nuclear energy, lignite, crude petroleum products and peat.

The Member States may decide whether to apply the cap on revenues at the settlement of the exchange of energy or thereafter. Any difference or excess revenue above the revenue cap would be paid to the Government, while leaving wholesale energy prices unchanged.

Specifically for Belgium, the introduction of a revenue cap on inframarginal electricity producers has been discussed. Likely a temporary tax or contribution will be applied on the excessive profits resulting from the higher energy prices above a certain threshold (expressed per MWh). Currently a tax rate of 100% above a threshold of 180 euro / MWh has been agreed for the first 11 months of 2022. As from December of this year until 30 June 2023, the threshold will decrease to 130 euro / MWh. The 100% tax rate will apply on the difference between the market revenue achieved by the company per MWh of electricity sold on the market and the threshold of respectively 180 and 130 euro per MWh of electricity sold. Such temporary tax or contribution would apply on the excessive profits generated by certain energy companies for a period of in total 18 months, with a possibility to extend this period.

How EY can assist you in navigating the complex energy landscape

The EY Energy Team consists of a dedicated network of fiscal an legal professionals assisting companies to navigate through the current volatile energy landscape and to identify both fiscal and non-fiscal incentives to lower their energy bill in Belgium as well as in the wider EU region.

Please contact us for more information.