Corporate Tax News Issue 63 - August 2022

Temporary windfall profits tax proposed for energy companies and banks

The Spanish government presented a draft bill to parliament on 28 July that would introduce temporary contributions on additional profits generated by energy companies and banks (i.e., credit and financing institutions). Specifically, a 1.2% contribution would apply on utility sales by power facilities and a 4.8% contribution on net interest income and net commissions of banks. Revenue from the contributions would be used to fund government measures to alleviate the economic consequences of the COVID-19 pandemic, skyrocketing inflation and the effects of global events, which have led to soaring prices of certain basic goods and services and had a deleterious effect on the population, in particular, the most vulnerable segments of the population.

According to public statistics quoted by the government, the sectors that have experienced the most significant price increases are electricity, gas and petroleum, as well as credit and financing institutions, which have profited from burgeoning interest rates.

If enacted, the measures would become effective on 1 January 2023 and apply to extraordinary profits obtained by covered entities during 2023 and 2024.

Entities subject to the contribution

The contribution applicable to the energy sector would apply to its main operators as defined by relevant laws and regulations. However, operators whose turnover for fiscal year (FY) 2019 was less than EUR 1 billion or whose turnover for FYs 2017, 2018 and 2019 with respect to energy sector activities did not exceed 50% of the total turnover of the relevant FY would fall outside the rules.

The contribution applicable to banks would apply to its main operators, defined as those whose income derived from interest and commissions for FY 2019 amounts to or exceeds EUR 800 million.

Tax base

The tax base of the contribution on the energy sector would be the company’s turnover, and if an operator is part of a tax group, the relevant turnover would be the group’s consolidated turnover. 

The tax base for the finance sector would be the sum of the interest margin (interest income less interest expense) plus the sum of income and expenses derived from commissions. If an operator is part of a tax group, the relevant margins would be the group’s consolidated margins. Turnover or the sum of margins would be that derived from the operator’s profit and loss account determined according to applicable accounting standards.

Significantly, the contributions would not be deductible for corporate income tax purposes (as is the case for the corporate income tax, which until now is the only nondeductible tax).

Contribution rate

As noted above, the rate of the contribution applicable to the energy sector would be 1.2% of the relevant turnover obtained in the calendar year (not the FY) preceding the date the income was accrued. The rate applicable to the banking sector would be 4.8% of the relevant sum of margins of the calendar year (not the FY) preceding the date the income was accrued.

Compliance obligations

Compliance obligations would apply to both energy companies and banks. Affected energy companies and banks would be required to file a return and pay the contribution within the first 20 days of September of the reporting year. In addition, an interim payment—equal to 50% of the final contribution payable—would have to be made within the first 20 days of February of the reporting year. If the tax base is not yet known by the due date of the interim payment, it could be calculated on the basis of reasonable estimations in line with applicable accounting standards of the sector. Penalties under the General Tax Act would apply for failure to comply, i.e., a minimum penalty equal to 50% of the tax due could be levied.

Affected operators would not be permitted to pass the cost of the contribution on to consumers. If an operator did pass on the costs, a penalty equal to 150% of the total amount charged to consumers could be levied.


Interestingly, the bill expressly avoids classification of the levies as a tax and instead classifies them as special temporary public non-tax contributions in an attempt to prevent the levies from being seen as taxes on income, which would mean an unjustified increase in the corporate income tax rate for affected energy and financing companies, as compared to their competitors that do not reach the minimum threshold. Companies in the energy and financing sectors already are subject to a 30% corporate tax rate (rather than 25%, which applies to all other companies), and if the contributions were treated as taxes, there could be grounds to challenge them since Spanish tax law principles do not allow the same taxable event to be taxed twice.

If enacted, the contributions would become effective on the date following the date the law is published in the official gazette and would apply for calendar years 2023 and 2024. Although the contributions are intended to apply only for a two-year period, it is possible this could change.

Eugenio García