Legal development

Excess Profits Tax

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    • Article 37 of Law Decree No. 21 of 21 March 2022, converted into law by Law No. 51 of 20 May 2022 (Article 37), introduced a "solidaristic contribution" on extra profits deriving from the increase in the average price of electricity and other energy sources. There is little doubt that such contribution is a new tax, albeit extraordinary and lump sum.
    • The purpose of this note is twofold:

                                  •    On one hand, to briefly describe this new tax and the possibility that it may not be considered                                         by  future case law as compatible with the Italian constitutional principles, despite it follows                                             the  recommendations of COM(2022) 108 of the European Commission (the EU                                                                       Communication);

                           •    On the other hand, to alert taxpayers to consider filing for a refund of the tax paid in order to                                           retain the right to pursue such refund should the judgments that follow (expected to be                                                       numerous) declare the tax non-compliant with constitutional principles.


    Article 37, as amended by Law Decree No. 50 of 17 May 2022, [1] provides that:

    • the tax applies on the excess profits realised due to the increase in prices in the energy sector; and
    • the tax applies to activities carried out in Italy, namely: (i) electricity production; (ii) methane gas production; (iii) natural gas extraction; (iv) resale of electricity, methane gas and natural gas; (v) production, distribution of, and trade in, petroleum products; (vi) outright importation of electricity, natural gas, methane gas or petroleum products from either EU or non-EU member states.

      1  It should be noted that, although the decree has already been converted into law, some relevant features of the tax have been amended by Law Decree No. 50 of 17 May 2022 and remain subject to conversion into law with possible further amendments.

     The tax base is calculated as the positive difference between: (i) the supplies registered from October 2021 to April 2022; and (ii) the supplies registered from October 2020 to April 2021 in accordance with the turnover recorded in VAT ledgers (the Differential Increase).

    The Differential Increase is taxable provided that it exceeds both (i) €5,000,000; and (ii) 10 per cent of the supplies registered from October 2020 to April 2021.

    The tax rate, initially set at 10 per cent, has been increased to 25 per cent by Decree No. 50.

    Forty per cent of the tax is due on 30 June 2022, as an advance payment, and the remaining 60% is due on 30 November 2022. The provisions relating to VAT apply to the collection or assessment of the tax, the relevant penalties and litigation.

    The tax is non-deductible for corporate income tax (IRES) and regional business tax (IRAP) purposes.

    From 1 May 2022 to 31 December 2022, the taxpayers identified in paragraph 1 of Law Decree No. 21 of 21 March 2022 must, on a monthly basis, report the average price of purchase, production and sale of electricity to the Competition and Market Authority. The duty to provide information is aimed at preventing the cost of the tax contribution being passed on to the final consumer in the form of a price increase.


    The special tax has been carefully structured to avoid the unconstitutionality issues that led to the repeal by Constitutional Court Decision No. 10 of 2015 of its predecessor, namely the IRES surtax on the energy sector introduced by Article 81 of Law Decree No 112/2008 (the so-called Robin Hood Tax). However, compatibility with constitutional principles remains a concern in terms of both the nature of the tax and its calculation and collection methods.

    One frequent criticism concerns the discriminatory selection of taxpayers, insofar as the tax affects only the energy supply chain, thus excluding a whole range of entities that undeniably enjoyed extra profits as a result of the current rise in energy prices.

    The substantially retroactive nature of the tax is not in line with the Statute of Taxpayers' Rights (Law No. 212/2000). This feature is also at odds with the EU Communication, which explicitly requires that the extraordinary measures should not be retroactive and the calculation mechanism should be defined on the basis of objective and verifiable criteria.

    The calculation of the Differential Increase based merely on VAT supplies may not be sufficiently sophisticated to distinguish between increases in supplies due to the rise in energy prices and those resulting from miscellaneous factors, e.g. sales of participations and assets, financial transactions, increased profits generated by new investments or corporate reorganisations.
    Moreover, the increase in VAT supplies does not take into account relevant factors such as depreciations and employment costs, which raises questions about the reliability of this method to capture increased income.

    Furthermore, the period of time from October 2020 to April 2021, in which Italy was affected by the pandemic crisis and prolonged lockdown constraints, may not offer a true picture of average energy supplies and could lead to an artificial hike in the Differential Increase.

    In addition, the time frame identified is shorter than a full fiscal year, which increases the risk that the results of any such calculation might be influenced by random external and temporary factors.
    Moreover, the non-deductibility of the tax for IRES and IRAP purposes may be seen as contrary to the general principles of taxation of business income.

    Given above, taxpayers need to decide whether to file for a refund of the tax paid in order to retain the right to pursue such refund should the judgments that follow (expected to be numerous) declare the tax non-compliant with constitutional principles.