Romanian Govt. transposes EU tax on windfall profits of fossil fuel producers and refineries

The producers of oil, gas and coal and the refineries in Romania will pay a temporary solidarity contribution (also known as windfall profit tax) of 60% levied on their taxable profits in 2022-2023 that are 20% or more than the average profit for the 2018-2021 period, according to an emergency ordinance passed by the Government on December 28.

The action, also a mere transposition of the EU Regulation and previously announced by the Government, prompted protests voiced by industry associations and investors. The most relevant objection is related to the size of the tax: 60%, well above the minimum floor (33%) recommended by the EU.

Although the sluggish transposition may have interfered with the companies’ planning for 2023, the effects on future investments should not be notable since the regulations aim to smooth one-off “windfall” profits that should not be a source for future investments.

The Government’s poor communication on the EU Regulation created, however, unnecessary volatility on the stock exchange. Notably, Fondul Proprietatea (BVB: FP) cashed its 2.85% stake in OMV Petrom (BVB: SNP) for EUR 150 mln, one of the companies envisaged by the solidarity contribution, on December 14 – a couple of weeks before the Government ordinance. Petrom’s shares dropped some 8% following the ordinance - but FP sold its stake only some 2.3% above the current market price.

The money collected by the Government from the solidarity contribution (some RON 3.9 bln or EUR 780 mln for FY 2022) will be spent on supporting natural and legal persons hit by the high energy prices and on co-financing projects already covered under REPower EU.

The ordinance transposes provisions of the EU Council Regulation (1854/2022) on an emergency intervention to address high energy prices. The temporary solidarity contribution shall apply in addition to the regular taxes and levies applicable according to the national legislation. Other provisions regarding the electricity producers were transposed by Romania previously.

In line with the Council Regulation, the profits of the financial years 2022 and 2023 are subject to the contribution. The Regulation recommends temporary solidarity contribution shall be at least 33%.