EU Energy Tax Proposal Demands Proactive Help From Tax Advisers

The EU has been working on revising the Energy Taxation Directive, or ETD, proposing to tax fuels based on their energy content and environmental impact rather than volume. The goal is to encourage cleaner energy usage and reduce reliance on fossil fuels for energy-intensive industries such as metal, cement, chemicals, glass, and paper.

Underlying this shift is a widely held objective to balance the EU’s decarbonization goals with economic stability and competitiveness. To that end, Poland in late March proposed that companies in these sectors receive “special treatment” through exemptions, reduced electricity rates, extended phase-in periods, or subsidies to help offset higher costs.

Although this proposal provides some breathing room, companies in these sectors still need to consider the serious tax implications. They must remember that their special benefits will only delay the inevitable—they’ll still face higher taxes on fossil fuels over time as the exemptions are phased out.

This means they should model future tax liabilities to include energy mix and consumption patterns. For companies under the EU emissions trading system, there likely will be an overlap with carbon pricing, which may cause double taxation.

On a positive note, this tax relief could free up capital for companies to invest in green technology. There also may be reearch and development tax credits that can help offset energy cost increases.

Tax advisers can help clients align their operations with the energy tax bill’s special-treatment provisions by providing strategic guidance and optimizing tax positions while ensuring compliance.

For starters, they can compile requisite data such as energy consumption records or financial statements to calculate energy costs as a percentage of revenue or production. This would determine whether clients are considered energy-intensive under the ETD.

If a company qualifies, the adviser can help them secure reduced rates, exemptions, or transitional relief to lower tax liabilities.

Strategically, advisers can perform financial modeling to project tax liabilities using different combinations of fossil and renewable fuels within the proposed phase-in period. This can help clients understand the impact on cash flow, enabling them to budget accordingly.

For example, a chemical manufacturer could find that shifting 15% of its energy to renewables by 2030 may reduce tax exposure by 250,000 euros ($284,000) annually. In addition to providing financial modeling, advisers can recommend energy strategies such as electrification projects aligned with tax relief requirements, using special treatment to offset investment costs.

Tax advisers also can help companies leverage broader tax incentives such as research and development credits or capital allowances for green technology to expand financial benefits beyond the ETD’s scope.

They can further analyze how the ETD and emissions trading system relate to each other and deploy tactics to avoid double taxation where energy taxes and carbon pricing overlap, especially if the emissions trading system revenue funds ETD subsidies.

In some cases, advisers may even analyze the supply chain and recommend adjustments to shift some operations from one country to another with favorable electricity tax cuts. They can assist with reporting requirements tied to special treatment, minimizing the risk of penalties or loss of exemptions due to noncompliance.

While it’s uncertain whether the proposal will be enacted, tax advisers can proactively work with their clients to integrate tax planning and stay ahead of evolving policies. This ensures clients can both manage the transition and position themselves competitively.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Jodi Ader is senior manager in RSM US’ trade and tariff advisory services practice.

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