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A ray of light for renewables

| News | Tax / Tax Litigation

The of the European Court of Justice rules on the Value Added Tax on the Production of Electrical Energy

In the year 2016 the Supreme Court showed serious doubts about the constitutionality of the Tax on the Value of Electrical Energy Production (IVPEE), and about its accommodation in the legal system of the European Union, and therefore raised a question of unconstitutionality, which was inadmissible by the Constitutional Court, in the opinion of the maximum interpreter of the Constitution, and since there are also doubts about incompatibility with the legal system of the European Union, the Supreme Court should have submitted a preliminary question to the Court of Justice of the European Union (TJUE) in order to clear them prior to going to the Constitutional Court. Therefore, the Constitutional Court returned the ball to the Supreme Court to play again.

The Supreme Court, in 2018, saving the match ball, returned the ball back to the Constitutional Court, since, without a basis in my conclusive opinion, considered that the IVPEE did not present problems of adjustment with the legal system of the European Union, and continued to have doubts about the constitutionality of this tax, so it again raised the issue of unconstitutionality through the order of January 10th, 2018. Faced with the Copernican shift of the High Court, the response of the Constitutional Court was categorical, and by order of June 20th, 2018 inadmissible the question of unconstitutionality because, in short, the IVPEE was not incompatible with the Tax on Economic Activities.

Thus, with the IVPEE not being unconstitutional, and the Supreme Court not having doubts on the compatibility of this tax with the legal order of the European Union, the party seemed finished, with clear losers, the power producers. Faced with this situation, and to the extent that the Supreme Court had closed the door to appeal to the ECJ, all that remained was for some Higher Court of Justice (TSJ) to take the decision to submit the question for a preliminary ruling, which did not seem to be an easy task, given the pronouncement of the High Court. In fact, the Higher Court of Justice of Murcia, Madrid, País Vasco and La Rioja have already handed down judgments dismissing the appeals without considering it necessary to submit a question for a preliminary ruling.

In the light of that scenario, the TSJ of the Comunidad Valenciana has taken a step forward and, by order of 22nd February 2019, has referred a question to the Court of Justice for a possible infringement of Community law by the IVPEE. The Valencian Court sends a message to the Supreme Court, since the High Court in its game played before the Constitutional Court, renounced raising the prejudicial question on the grounds that it had reached the conviction that the IVPEE did not present problems of adjustment with the legal system of the EU, but "it did not motivate its conviction nor did it provide the reasons for its decision.”

And what doubts does the Supreme Court of Justice in Valencia have that lead it to raise the question referred for a preliminary ruling? The doubts generated by the IVPEE are the following:

  • Despite its regulation as a direct tax, its nature and essential elements are characteristic of an indirect tax;
  • Although it has an environmental purpose, it is essentially a tax with no specific purpose, charge, not extrafiscal;
  • That the production of electrical energy from renewable sources is discriminated against;
  • Distorting the internal market for electrical energy and infringing free competition.

What's going to happen now? In order to avoid the statute of limitations, and not to prejudice the right to a refund, procedures must be initiated before the Tax Agency requesting the refund of non-prescribed taxes paid and, with regard to contentious-administrative appeals pending judgement, in my opinion, they should be suspended at the expense of the pronouncement of the ECJ in order to avoid pronouncements which disagree with what the European Court may say.

In short, the ball is back in play. 

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