Producers of electricity, particularly from renewable sources, are exposed to various phenomena over which they have no control and which have a significant impact on the profitability of their operations. One such phenomenon is the freezing of electricity prices by the government in order to protect consumers’ budgets. It is true that energy companies are entitled to compensation for this, but as is usually the case with new solutions, its correct taxation is questionable.
Subject
This concerns the Act of 27 October 2022 on emergency measures to limit electricity prices and support certain consumers in 2023 (hereinafter: the Maximum Prices Act), which sets maximum electricity prices that can be operated by energy trading companies.
On the basis of Article 8 of the aforementioned Act, due to the adoption of non-market prices, eligible entities are entitled to compensation.
VAT taxation of compensation
Pursuant to Article 29a(1) of the VAT Act, grants, subsidies and other financial benefits of a similar nature received which directly affect the price of goods supplied by a taxpayer must be included in the taxable base.
In order to determine whether the compensation granted to energy companies is subject to VAT, it is therefore necessary to consider whether it can be deemed to be a financial benefit referred to in the above provision of the VAT Act.
On the surface, the matter appears simple, as the provision of Article 10(2) of the Maximum Prices Act clearly indicates that the amounts of compensation received by energy companies do not constitute the benefits indicated in Article 29a(1) of the VAT Act.
Position of the tax authorities and administrative courts
However, the tax authorities are not so sure. Some of them, as well as the Director of the National Fiscal Information, consider that Article 10(2) of the Maximum Prices Act cannot be applied at all due to the autonomy of tax law and the harmonization of VAT rules at the level of the entire European Union. (cf. individual binding tax rulings, nos. 0111-KDIB3-1.4012.898.2022.1.IK and 0112 KDIL3.4012.269.2023.2.EW). A similar approach by the Director of the National Fiscal Information can also be seen in the case of compensation for the application of maximum gas prices (cf. individual interpretations nos. 0114-KDIP1-1.4012.299.2023.1.MŻ and 0111-KDIB3-3.4012.622.2022.1.MAZ).
The argument for such an approach is to be found in Article 4 of the VAT Act, which stipulates that tax reliefs and exemptions provided for in separate acts do not apply to the tax on goods and services. However, it is worth noting that both the above provision of the VAT Act and the provisions of the Maximum Energy Prices Act have the same equivalent statutory status, which raises some doubts as to their scope of application.
Due to the short duration of the compensations, the issue of their taxation has so far been addressed by only one administrative court. In a judgment of 17 February 2023 (ref. III SA/Wa 2440/22), the Provincial Administrative Court in Warsaw referred to compensation received in connection with the trade in gaseous fuels, where the same mechanism excluding the application of at. 29a(1) of the VAT Act. In the court’s view, Article 4 of the VAT Act does not foreclose the possibility of excluding the application of provisions of the VAT Act provided for in other laws.
Implications for taxpayers
As the legislator has expressly excluded the application of Article 29a of the VAT Act in the case of compensation paid to energy companies for maximum energy prices, and the tax authorities and equivalent provisions cannot exclude this, and taking into account the ruling of the PAC in Warsaw, I am inclined to the position, consistent, moreover, with the will of the legislator, that the compensation in question is not subject to VAT.
The above-cited non-final ruling of the PAC in Warsaw is the first ruling issued in similar cases and concerned a binding tax ruling from 2022. Subsequent negative interpretations were issued as early as 2023, so we will still have to wait for further rulings. Unfortunately, already after the verdict of the PAC in Warsaw, the Head of the National Fiscal Information maintains its uniform position, so without new verdicts, we should not expect it to change.