Reduced Electricity Tax Rate as State Aid – How Should an Undertaking in Difficulty Be Defined for State Aid Purposes?

Our tax team, together with our EU & Competition team, assisted a client with an electricity tax audit where the Tax Administration first took a view that the client qualifies as an undertaking in difficulty as defined in the General Block Exemption Regulation.

Had the initial view of the Tax Administration prevailed, the client would not have been qualified to purchase electricity with a reduced tax rate. With Borenius’ assistance, the client was able to turn the Tax Administration’s assessment on the matter.

There are two electricity tax rates, a regular tax rate and a reduced tax rate. The reduced electricity tax rate is applicable to electricity used for industry, certain data centres, heat pumps, electric boilers, circulation pumps in geothermal heating plants and professional greenhouse cultivation. The reduced electricity tax rate is considered state aid.

Therefore, the undertakings acquiring the electricity with a reduced tax rate must meet the qualifications set in the state aid regulations. One of these qualifications is that the undertaking cannot be in difficulty.

In the electricity tax audit, the Tax Administration analysed whether the client purchasing the electricity with a reduced tax rate qualifies as an undertaking in difficulty. In their first analysis, the Tax Administration considered only the economic situation of the group’s parent company who had purchased the electricity.

As a result, the Tax Administration deemed that the client was an undertaking in difficulty, as more than a half of the parent company’s subscribed share capital had disappeared as a result of accumulated losses.

However, this analysis ignored the CJEU’s case law and the European Commission’s notices, under which, for state aid purposes, an undertaking should be understood as an economic unit that can consist of several legal persons. Therefore, the analysis of the economic situation should be done the group level and not at individual group company level.

With Borenius’ assistance, the client argued against the Tax Administration’s initial view that only the economic situation of the parent company should be taken into consideration. The client presented information on the economic situation of the group that showed there had been no loss of capital at the group level representing more than a half of the subscribed share capital .

As a result of this argumentation, the Tax Administration changed its initial assessment and concluded that the client did not meet the requirements set for an undertaking in difficulty. Thus, no additional electricity tax was levied on the client.

The result follows the CJEU’s case law and the Commission’s statements on the matter. The engagement is a fine example of Borenius’ capability to provide assistance in matters that require expertise on several branches of law.

Borenius’ lawyers Einari Karhu, Henna Jovio, Henrik Koivuniemi and Anna-Riikka Nummi are available to assist you in any questions you may have regarding this matter.