Conformity of the Tax on the Value of Production of Electric Power with EU Law

The Court of Justice of the European Union called to rule on the validity of the Spanish tax on the production value of electric power.

The High Court of the Valencian Region (Comunidad Valenciana) has referred on 22 February 2019 a preliminary ruling to the Court of Justice of the European Union, based on article 267 of the Treaty on the Functioning of the European Union (TFEU), concerning the interpretation of the EU Law as to the validity of the Tax on the Production Value of Electric Power (IVPEE, its acronym in Spanish), created by Act 15/2012, dated on 27 December 2012, on fiscal measures of energy sustainability. According to various reports appeared in the press, the electric companies have disbursed around 9,000 million euros since the law of the IVPEE entered into force.

The electric companies have been exempt from paying this tax during six months, by the recent Royal Decree Act 15/2018, of 5 October 2018, of urgent measures for energy transition and consumer protection. Upon the expiry of the period of suspension, the companies are again due to pay the IVPEE.

Prior to this reference, the Supreme Court of Spain had dismissed the reproaches of dissatisfaction with European law of the IVPEE by order dated on 10 January 2018, and raised question of unconstitutionality. Recently, through an order dated on 20 June 2018, the Constitutional Court of Spain cleared the question about the full adequacy of the IVPEE to the constitutional order.

In this scenario, once rejected the allegations of violation of domestic law, only the possibility of a reference for a preliminary ruling coming from a lower court in Spain, other than the Supreme Court, remained opened for those who still pretended to lead the discussion upon the legality of IVPEE to the field of the European Law. Well, this just happened, when the Valencian High Court has addressed the question to the CJEU in the frame of a contentious procedure against the dismissal of an economic-administrative appeal concerning the liquidation and payment of the IVPEE.

The debate, in the context of the European Law, revolves around the essential question as to determine whether the IVPEE -designed by the Spanish legislator as a direct and real tax applied to the activity of production and incorporation of electric power to the electricity system, measured in plant busbars, generated in all kinds of facilities- really disguises an indirect tax. It is settled case-law that the nature of a tax, duty or charge must be determined by the Court, under European law, according to the objective characteristics by which it is levied, irrespective of its classification under national law (Judgment of the Court of 13 February 1996, C-197/94, Bautiaa and Société française maritime).

The main argument raised by the Spanish court in this preliminary ruling is that, by the recent Royal Decree Act 15/2018, the decision of suspending the payment for the following six months of the IVPEE has been adopted in the understanding that the economic burden that represents this tax is meant to be on the end-user of energy.

Is this a sufficient reason to discuss the tax from the point of view of the European Law?

The essential characteristic of an indirect tax is that it is levied at the point of expenditure or use, whereas a direct tax is applied to income or capital. Also, it must be clear that the indirect tax has been conceived and laid down with a view to being passed on to the end consumer (Judgment of the Court of 14 January 2016, Commission/Belgium, C-163/14).

The response of the CJEU will be a key element, that shall establish whether the IVPEE is a tax levied on the electricity produced and meant to be passed on the final consumer of electricity.

In presence of an indirect tax, the Directive 2008/118/CE, on the general arrangements for products subject to excise duty, will be applicable, and thus, the discussion as to the “specific purpose” pursued by the IVPEE is to be faced. It is apparent from the case-law of the CJEU, that a specific purpose is a purpose other than a purely budgetary purpose (see judgments 24 February 2000, Commission v France, C-434/97; 09 March 2000, EKW and Wein & Co, C-437/97, and 27 February 2014, Transportes Jordi Besora, C-82/12, among others).

According to article 1.2 of the abovementioned Directive, the products subject to the excise duty may be subject to other indirect taxes for specific purposes, provided that those taxes comply with the tax rules applicable for excise duty and VAT purposes as far as determination of the tax base, calculation of the tax, chargeability and monitoring of the tax are concerned.

The referring Spanish court seeks the CJEU to establish that, despite the environmental purpose of the IVPEE, meant to be supported by the electricity producers that must carry on with the high costs of maintenance of the electricity transport and distribution networks, that objective is not reflected in the legal definition and structure of the IVPEE.


Should the approach of the referring Court not succeed before the CJEU, as to the indirect nature of the IVPEE (additional to the harmonised excise duty on electricity), there are still other elements which could undermine the compatibility of this controversial tax with the European legal order.

Even in case that the CJEU considers that the IVPEE does not fall within the scope of the Directives concerning the excise duty on electricity, according to its settled case-law, the direct taxation is a question of the exclusive sovereignty of the Member States, although they must exercise their powers with full respect to the fundamental freedoms enshrined in the Treaties.

It must also be recalled that the fact of having been posed a preliminary ruling concerning the validity of the provisions of a domestic legislation, does not prevent other national court from addressing a new question to the CJEU, from a new perspective or raising new issues.

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