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Date added: 07.08.2024

Electric energy for own usage and maintenance of the production process versus excise taxation

The Excise Duty Act provides an obligatory record of the quantity of electricity by, among others, entities that sell electricity. It requires, in particular, data on the amount of electricity consumed for own use and energy consumed in the process of sustaining production. Many taxpayers find it difficult to determine what will be included in these categories of energy consumed by a wind or photovoltaic farm and how the excise duty on the indicated categories of electricity is addressed. These issues will be addressed in the article below.

Characteristics of the records

Electricity quantity records should contain, as appropriate, the data necessary to determine on a monthly basis, with an accuracy of 0.001 MWh, the total amount of:

  1. Electricity produced, acquired intra-Community, imported or purchased in the territory of the country;
  2. Electricity sold to individual customers in the territory of the country;
  3. Electric energy sold to licensed parties within the meaning of the Energy Law Act;
  4. Electric energy delivered intra-community and exported;
  5. Electric energy consumed for own needs;
  6. Electric energy that is exempt from excise duty – consumed in the process of production of electric energy, as well as in the process of sustaining production processes and in the process of production of electric energy and heat in cogeneration;
  7. Non-taxable losses of electricity (losses resulting from the transmission, distribution or storage of electricity, excluding energy consumed in connection with its transmission, distribution or storage, and electricity taken illegally).

The Act also stipulates on what basis taxpayers should determine the amount of electricity used for own consumption that does not relate to sustaining production, if they are unable to determine it precisely on the basis of, for instance, indications from metering devices. A solution in this case is provided by Article 138h(3) of the Excise Duty Act, according to which, in the absence of metering devices, record-keeping is possible based on a coefficient-based level of electricity consumption per individual device indicated in the documentation maintained by the taxpayer. If this is also not possible, the taxpayer should determine estimated quantities (Article 138h(6)).

Energy consumption criteria and exemption from taxation

What is meant by electricity consumed in the process of production and its maintenance? According to the standpoint presented by the tax authorities, only the consumption of electricity that directly, strictly and instantly enables the production of electricity and, in the same way, conditions the maintenance of this production can be included in the process of electricity production and processes related to its sustaining, with the exclusion of electricity that is consumed to drive electrical equipment used in these processes. The authorities point out that the electricity production process is aimed at the direct execution of the product (electricity). On the other hand, sustaining the processes of production of electricity is maintaining the devices and installations used in the process of production of electricity in a condition that allows the production of electricity to be resumed after an outage resulting, e.g., from the need for servicing or repairs to the device in question (example: individual interpretation of the Director of the National Fiscal Information of 1 June 2018, mark: 0111-KDIB3-3.4013.77.2018.1.JS).

As confirmed by the Director of the NFI in an individual interpretation dated 8 March 2022, 0111-KDIB3-3.4013.350.2021.2.MK, the exemption from Article 30(6) of the Excise Duty Act does not apply to, among others. energy consumption for lighting, energy consumption for activities that do not have a direct and instant impact on the process of production of electricity and sustaining this process, energy consumption during the stages of obtaining energy carriers, stages of transport, unloading and storage of the energy carriers, processing and storage of waste from production, including the use of excise goods (including electricity) as a driving energy for equipment used in the course of the production process and its maintenance, even if the power supply of this machinery is necessary for the process itself to take place.

Thus, the exemption for the consumption of electricity covers only energy directly dedicated to the production process or its maintenance. The applicability of this exemption is conditioned by the objective character of the activities performed during the production steps and the objective character of the activities related to sustaining these production processes.

The exemption will therefore not cover electricity consumed, for example, for the lighting of access roads, car parks, buildings, light markings of the farm or monitoring (in this respect photovoltaic farms may be slightly different from wind farms). In accordance with Article 89(3) of the Act, this energy will be subject to taxation at the rate of PLN 5/MWh, which will also entail the obligation to submit monthly declarations AKC-4 by the 25th day of the month following the month in which the taxable activity occurs and occasionally the obligation to pay tax. In practice, consumption may be so low that, applying the rules for rounding off the tax base from Article 63 of the Tax Ordinance (Journal of Laws 2023, item 2383), the tax due will be PLN 0.

Position of the CJEU

The issue of the tax exemption of electricity used to produce power was also addressed by the CJEU in its judgment of 9 March 2023 in case C-571/21. The case concerned a taxpayer operating opencast lignite mine, which was used for the production of electricity used, inter alia, for lighting the mine, transporting coal by electric trains and water pumps. The tax audit concluded that all electricity taken for the extraction and transport of lignite should have been taxed as fuel production, so that tax on electricity was also due on electricity used for the operation of coal excavators, conveyor belts and coal mills.

According to the CJEU, the exemption from taxation of electricity used to maintain the capacity to produce electricity could include electricity used for the operation of installations for the storage of an energy product such as lignite, and of means of transport enabling the delivery of that product, provided that these operations take place on the territory of a power station, provided that they are necessary and contribute directly to maintaining the efficiency of the technological process of electricity production, insofar as such operations are required to ensure the maintenance of the capacity for continuous electricity production.

The beneficiaries of the position expressed by the CJEU may be not only the taxpayers operating coal mines indicated in the facts, but also taxpayers owning power plants producing energy from renewable sources. Both the CJEU and the Polish tax authorities stated that the factor conditioning the applicability of the exemption is the destination of the energy obtained, as the energy consumed must be used directly for production or its maintenance.

Summary

In conclusion, the obligation to keep quantitative records of electricity consumed imposes precise requirements on specific taxpayers regarding the categories of consumption for own use and for production and its maintenance. According to the current position of the courts and authorities, the tax exemption only applies to energy directly dedicated to the narrowly defined production process or its maintenance, so energy consumed for lighting and monitoring will not be exempt and will have to be taxed or at least declare it (consumption may turn out to be so small that no tax is due – but the penalties for not declaring are also much higher). Businesses beginning their investments are often unaware of their record-keeping obligations regarding electricity consumption. On the other hand, those who already have investments in place, when informed of this obligation, do not know how to calculate the amount of energy to be used for own consumption or to sustain production. This issue causes some uncertainty, especially when we do not have the relevant data from metering equipment.

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