Author: Natalia Jánošková, Associate at CMS Slovakia
Companies that are subject to the greenhouse gas emissions trading scheme and were allocated emission allowances free of charge in accordance with the Slovak implementation of Directive 2003/87/EC during the five-year trading period 2008-2012 can still claim a refund of unlawful CO2 taxes from the competent authorities until 12 April 2021.
Although Directive 2003/87/EC (as amended in 2011) in principle stipulates that emission allowance allocation be “free of charge,” some European Union Member States have burdened emission allowances with a CO2 levy. It is not only Slovak legislation that conflicted or conflicts with EU legislation as a result. The same problem also affects other EU Member States.
Slovak companies that were allocated free emission allowances during this five-year trading period paid a CO2 tax of 80% for the tax assessment period 1 January – 31 December 2011, a tax that was introduced by the controversial Section 51(b) of the Slovak Income Tax Act No. 595/2003. In many cases, the amounts involved were in the six-figure euro range.
The major implications of the European Court of Justice ruling
The turning point came on 12 April 2018 when, in its ruling in case C-302/2017, the European Court of Justice (ECJ) found that Slovakia’s taxation of emission allowances in 2011 was contrary to EU rules. According to the European Court of Justice’s reasoning, the 80% CO2 tax levied on emission allowances allocated free of charge deprived companies of almost all the financial value of their emission allowances.
The 80% CO2 tax levied on emission allowances allocated free of charge deprived companies of almost all the financial value of their emission allowances
As a result, companies had little interest in reducing greenhouse gas emissions. Instead of taking measures to reduce greenhouse gas emissions, the companies transferred almost all the profit from selling and saving emission certificates to the Slovak treasury. Although taxing emission allowances was not a direct levy, this so-called secondary imposition of charges was not in line with Directive 2003/87/EC either.
Entitlement to reimbursement of the unlawfully levied CO2 tax
Companies that paid the unlawfully levied CO2 tax for the tax assessment period 1 January – 31 December 2011 can still receive their money back. To do so, they must submit their refund application to the competent authorities by 12 April 2021. The deadline is 12 April 2021 because the claim for compensation can be made for three years (the ECJ ruling is dated 12 April 2018).
Since the unlawfully paid CO2 tax meets the legal definition of a tax overpayment (i.e., it is an amount that exceeds the amount of tax due), companies may also claim for the default interest accrued due to a late refund of the tax overpayment.
Although the right to a refund of the CO2 tax paid for the tax assessment period 1 January – 31 December 2011 is already time-barred under Slovak tax legislation, it remains possible to apply for a tax refund under the legislation on state liability for damage caused by the exercise of official authority.