BDO Global Tax Alert

Government announces windfall tax to be levied on domestic energy companies

24 November 2022

On 18 November 2022, the Austrian federal government reached an agreement on how it intends to implement a temporary windfall tax on Austrian energy companies. The windfall tax would be levied on profits generated in 2022 and 2023 that are deemed to be “excessive” and the tax rate would reach 40% for oil and natural gas companies. The Austrian tax, which would implement the recent EU regulation in this area, is expected to be enacted by the end of 2022. (See the August and November issues of BDO’s Corporate Tax News for analyses of recent windfall taxes in other countries.)

The EU regulation, which applies as from 8 October, contains emergency provisions to address soaring energy prices across the EU by introducing measures to reduce the demand for electricity and redistribute surplus revenues derived by energy sector companies to final consumers. The regulation (i) imposes a temporary solidarity contribution tax on excess profits generated by fossil fuel companies; (ii) requires member states to reduce their gross electricity consumption by 10% and at least by 5% during certain peak hours (during the period 1 December 2022 and 31 March 2023); and (iii) imposes a cap on certain electricity generators.

Austria’s windfall tax would apply to fossil energy producers, i.e., producers and traders in the oil and gas sector and electricity-generating or trading companies:

  • Fossil energy producers:
    • “Excess profits” for purposes of the windfall tax would be profits exceeding the average profits of the past four years (2018-2021).
    • If the current profit is more than 20% above this average, 40% of the windfall profits would be taxed. However, companies that invest their windfall profits in projects to convert to renewable energies would be eligible to have their windfall tax rate reduced from 40% to 33%.
    • Since the 25% Austrian corporate income tax would continue to be due on the profits of affected companies on top of the planned windfall tax, the total tax burden would ultimately reach up to 65% of excess profits.
    • The windfall tax would apply retroactively for fossil fuel generators as from 1 July 2022 and would remain in place through 31 December 2023.
  • Electricity generating or trading companies:
    • A revenue cap of EUR 180 per megawatt hour would be imposed on electricity- generating/trading companies, but would drop to EUR 140 megawatt hour if no investments in renewable energies could be shown.
    • Only 90% of the windfall profits would be taxed.
    • The measures for electricity producers also would apply until the end of 2023, but in contrast to the measures applying to fossil energy companies, these rules would apply as from 1 December 2022.

Despite the political agreement reached on the windfall tax, it is possible that the measures may be revised during the legislative process.

Clemens Fath