PPC Power a.s. v. Finančné riaditeľstvo Slovenskej republiky and Daňový úrad pre vybrané daňové subjekty (European Court of Justice, 2018)

European Union

Jurisdiction: European Union

Principle law(s): EU Emission Trading Scheme (EU ETS) (Directive 2003/87/EC establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC)

Side A: PPC Power a.s. (Corporation)

Side B: Finančné riaditeľstvo Slovenskej republiky and Daňový úrad pre vybrané daňové subjekty (Government)

Core objectives: Interpretation of Article 1 of Directive 2003/87/EC establishing a scheme for greenhouse gas emission allowance trading within the European Community, in the context of the advance payment of tax on greenhouse gas emission allowances allocated free of charge which have not been used or have been transferred. Interpretation of Article 1 of Directive 2003/87/EC establishing a scheme for greenhouse gas emission allowance trading within the European Community, in the context of the advance payment of tax on greenhouse gas emission allowances allocated free of charge which have not been used or have been transferred.

Summary

PPC Power operates an installation in Slovakia that is subject to the European Union Emissions Trading System (EU ETS). In addition to EU ETS requirements, the government of Slovakia imposed an 80% tax on emissions allowances that were transferred or unused, and therefore allocated free of charge. This tax was applied between 1 January 2011 and 30 June 2012.

PPC Power requested that the Tax Administration for Certain Taxpayers, Slovakia ("the DU"), set the amount of the advance of tax payable for 2011 at zero because the legislation establishing the 80% tax rate was incongruous with EU Directive 2003/87/EC. The DU rejected PPC Power's request and set its advance payment amount for the first half of 2011 to EUR300,000. PPC Power applied for repayment of that amount and, when that decision was ultimately rejected by the DU, PPC Power filed suit with the Regional Court of Bratislava, contesting, on the one hand, the decision of the Slovak Republic tax administration rejecting its application for repayment of the advance payment of tax for the first half of 2011 and, on the other, the decision of the DU, setting the amount of advance payment of tax due in respect of the second half of 2011. The Regional Court referred the question to the European Court of Justice (“ECJ”), whether Directive 2003/87 must be interpreted as precluding national tax legislation, such as that at issue in the main proceedings.

The ECJ ruled that Directive 2003/87/EC "must be interpreted as precluding national legislation, such as that at issue in the main proceedings, which taxes, at 80% of their value, greenhouse gas emission allowances allocated free of charge which have been sold or not used by the undertakings subject to the greenhouse gas emission trading scheme." The ECJ acknowledged that Directive 2003/87/EC requires member states to allocate at least 90% of emissions allowances free of charge but still allows member states to determine procedures for allocating them. However, the ECJ found that, the Slovakian tax eliminated "virtually all of the economic value of emission allowances," and therefore negated the incentive mechanisms underpinning the EU ETS. To reduce emissions in the manner prescribed by the EU ETS, the ECJ ruled, Directive 2003/87/EC must be interpreted as precluding national legislation such as Slovakia's at issue in the proceedings.

Case documents

Related laws and policies

This law implements European Union legislation

EU Emission Trading Scheme (EU ETS) (Directive 2003/87/EC establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC)

Passed in 2003 Legislative

This Directive establishes a Community GHG emissions trading scheme from 2005, to enable the Community and the Member States to meet their Kyoto Protocol commitments. Directive 2004/101/EC reinforces the link between the EU's emission allowance trading scheme and the Kyoto Protocol by making the ...