Iberdrola will launch a legal challenge against a “discriminatory” windfall tax imposed by Madrid on Spain’s largest energy companies, following in the footsteps of banks that are fighting a similar levy in the courts.
Ignacio Galán, Iberdrola chair, said its “legal department is already taking action to defend the interests of shareholders” as the company prepares to appeal against the tax this week at Spain’s National High Court.
The Spanish group’s challenge raises the stakes in a battle between some of the country’s biggest companies and the Socialist-led government, which proposed the windfall taxes last year as it seeks funds to mitigate the impact of high energy costs and inflation on citizens.
Spanish lenders including Santander and BBVA have decided to challenge the authorities over the temporary taxes after paying their first instalment, which was due by February 20.
The energy windfall tax will be levied on companies that had revenues of more than €1bn in 2019, including electricity utilities and oil and gas groups.
Iberdrola, Europe’s biggest utility, has already paid a €100mn windfall tax bill for 2023, half of the expected total for this year.
Galán questioned the design of the tax for energy utilities because it is a 1.2 per cent levy on their revenues that is charged regardless of profits.
“The government are saying they are going to charge based on the windfall profit. I think we have windfall losses,” he said. “We have 19 per cent less profit than the previous year [in Spain].”
Gerardo Codes, Iberdrola’s director of legal services, said the tax was “arbitrary and discriminatory”, adding: “We consider that [it] is in breach of the Spanish constitution and European law.” He said the court was not likely to issue a judgment until next year.
Aelec, an energy trade group whose three members are Iberdrola, Endesa and EDP, launched its own appeal against the windfall tax at the National High Court last week.
The government of prime minister Pedro Sánchez argues that big utilities and banks are making “extraordinary” profits and have a responsibility to help alleviate the cost of living crisis.
María Jesús Montero, Spain’s finance minister, said last week that the government was promoting “fiscal justice” so that those with the greatest earnings “make an effort to help the majority in society”.
The government has signalled its confidence that the windfall taxes will withstand legal challenges.
It is aiming to raise €4bn in 2023 and 2024 from utilities, which have benefited from a soaring gas price that has also lifted renewable power revenues for groups such as Iberdrola because of the way market pricing works.
Madrid also wants to raise a total of €3bn from banks, which must pay a 4.8 per cent tax on their income from interest and commissions. Lenders are benefiting hugely from rising interest rates, the government says, citing their latest bumper quarterly earnings as evidence.
Iberdrola generated revenues of €54bn in 2022, up from €39bn in the previous year, with more than €16bn made in the final quarter. Strong growth in the US and Brazil helped the company offset weakness in Europe linked to the region’s energy crisis.
Galán told the Financial Times in November that clean energy incentives in the US made it a “very much” more appealing place to invest than the EU. On Wednesday he was more complimentary about the EU, saying its efforts to create a European version of the US Inflation Reduction Act were “moving in the right direction”.
Source: Economy - ft.com
