Spain's Congress votes yes on windfall tax for energy companies

Spain’s Congress has voted to approve a windfall tax proposal designed to slap a 1.2% levy on energy companies’ net revenues and pump the proceeds into measures to help mitigate the impact of high energy prices on vulnerable households, among others.

In Thursday’s session that ended well after midnight, the lower house approved the proposal with 186 votes in favor, 152 against and 10 abstentions.

Thanks to amendments submitted by regional parties, new tax rules will not apply to revenues earned abroad and from regulated activities in Spain, such as transmission and distribution grids, and power and gas retail at regulated prices.

Energy companies that posted revenues below EUR 1 billion (USD 1.04bn) in 2019 will not be taxed. Others will have to pay the tax in 2023 and 2024 for the revenues earned a year prior.

The Spanish government was hoping to raise EUR 4 billion from the energy sector during those two years, but finance minister Maria Jesus Montero told a local media outlet that the amendments would lower that amount to EUR 3.6 billion.

The temporary tax will apply to companies regardless of whether they produce energy from renewable sources or fossil fuels, or operate refineries.

The energy sector has expressed discontent with the proposed measures. Spanish utility Endesa SA (BME:ELE) incorporated the effect of the tax on its net profit in the 2023-2025 strategic plan, expecting a lower bottom line once it starts paying the government some EUR 250 million to EUR 300 million per year during the period of enforcement of the law.

Ignacio Galan, the executive chairman of Iberdrola SA (BME:IBE), told the Financial Times that his utility was not earning windfall profits on the back of high energy prices since it sold electricity via long-term contracts at fixed rates.

The oil-and-gas industry hit back as well. Spanish association of refiners and petroleum products distributors AOP, which includes Repsol SA (BME:REP), Cepsa, Eni SpA (BIT:ENI), BP Plc (LON:BP) among its members, said that the tax “punishes a key and particularly strategic sector in the current geopolitical situation”. The measure undermines the industry’s competitiveness and compromises its investments in decarbonisation and the energy transition, AOP said in a statement last week.

The tax proposal will now be submitted to the Senate, where it can be approved as such, amended or vetoed. If the Senate does not approve it, the proposal will be sent back to Congress for further debate.

(EUR 1.0 = USD 1.038)

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