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Excise duty on energy generation by entrepreneurs

When producing electricity, the entrepreneurs is obliged to effect numerous tax obligations, which he should absolutely keep in mind. We should also mention the benefits that can use from generation electricity. Depending on the type of production, the entrepreneur is eligible to use incl. subjective exemption. This possibility is presented in the Excise Duty Act, but certain conditions must be met in order for that exemption to be effective.

What is exempt?

In the first place, it is necessary to analyze the extent to which the excise exemption offered from power generation is covered. This is provided for in Article 30 (6) of the Excise Duty Act, where it is indicated that the consumption of electricity in the production process and the consumption of energy in order to maintain the production process are exempted from excise duty. Therefore, the exemption may also apply to the range of energy necessary for the operation of the generator cooling device or the energy consumed to restart the generator its downtime.

In addition, Article 30 (7) and (7a) of the Excise Duty Act exempts the consumption of electricity in the production process and heat in combination and the electricity used for chemicals reduction purposes, electrolytic, metallurgical and mineralogical processes. In order to further approximate the use of electricity and heat in combination, coal consumption and the necessary energy produced for its production can be used to transport it to generate energy.

Moreover, the Act provides array of other exemptions for the production of electricity as indicated in Article 30 (1) where exemption from excise duty on electricity produced from renewable energy sources can be obtained. However, it should be emphasized that the provision offering an exemption can only be applied if there is a document confirming the extinction of the certificate of origin of energy, but what does it really mean?

Certificate of origin of energy

As already mentioned, a necessary element for benefiting from the exemption from excise duty is the possession of a so-called certificate of origin for energy. It should be mentioned that this concept is not defined in the legislation directly, but the Excise Duty Act refers us to the Energy Law as well as the Act on Renewable Energy Sources (hereinafter: RES Act). As explained in Article 44 (1) of the RES Act, this is a document of the RES generator and the RES power generator in an installation other than micro-installation. As indicated in the following provisions, the distinction between electricity produced from agricultural biogas and others for agricultural biogas from renewable energy source is issued differently.

How to take benefit of the excise duty exemption?

Firstly, it is necessary to show the essence of the functionality of the excise duty exemption, which will clarify further conclusions. Under the Excise Duty Act, energy produced from a renewable energy source is exempt from the excise duty which results from the implementation of Council Directive 2003/96/EC. The exemption may be applied if the get document, i.e. a certificate of origin for energy, is received which entitles is to a reduction of a certain amount. The Directive introduces several possibilities: total, partial or reduced at a certain rate, exemption for renewable energy sources. However, the European Union has given free choice here to implement a specific application of the exemption by the Member State.

In Poland, however, the exemption does not consist in the current reduction of the tax base by the value of the exemption, but applies not earlier than upon receipt of the document confirming the redemption of the certificate of origin for energy, by reducing the excise duty due on electricity for the next billing periods. So we apply them on an ongoing basis (at the time of receipt of the document), but according to the value of the exemption for past periods (or at least it seemed so, as illustrated by the problems below).

Thus, in 2019, there was an amendment to the provisions of the Excise Duty Act, where the excise rate on electricity was reduced from PLN 20 to PLN 5 per 1 MwH. The problem faced by entrepreneurs was the proper of the tax exemption for RES, where no transitional provisions were presented to clarify the issue. Accordingly, on 19 February 2020, the Ministry of Finance issued a communication which states: In case of an exemption as referred to in Article 30 (1) of the Excise Duty Act, the reduction in excise duty payable on electricity in the coming tax periods shall be made taking into account the excise duty rate applied in the tax declaration on electricity during those tax periods.

According to the above communication, taxpayers who have generate electricity from renewable sources and in 2018 paid an excise duty of PLN 20/1MwH, can deduct a much lower rate – PLN 5/1MwH from 19 February 2019.