Finland collects “windfall tax” from electricity businesses

The Finnish Parliament has approved legislation on additional tax on the net income of electricity industry actors in 2023.

As a national response to EU Council Regulation 2022/1854, the Finnish legislator voted on 27 February 2023 in favour of a new Act on Temporary Profit Taxes in Electricity Business and Fossil Fuel Business, still pending formal parliamentary reply and presidential confirmation. The Act will target windfall profits attributable to unusually high electricity prices.

Unlike many of its European counterparts, the Finnish solution relies on net income taxation rather than capping market revenues. Under the new legislation, profits from electricity business are made subject to a 30 % additional tax, levied on the net income that exceeds a 10 % calculative return on equity capital.

With its entry into force, the new legislation will entail notable albeit temporary fiscal implications for electricity producers and electricity suppliers in the wholesale and retail markets. Exemptions apply to businesses whose electricity business revenues fall below 500,000 euros per annum. Further, the tax is not levied on certain electricity retailers that do not engage in electricity production.

The temporary windfall tax applies to profits for the tax year 2023. Tax returns are filed and the tax is assessed in 2024.

Under the same act, a separate interim windfall tax will be levied on companies that accumulate more than three quarters of their revenues from fossil fuels.