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Spain will extend a controversial windfall tax on banks and energy companies by an extra year, but has softened the blow to some businesses that oppose it by introducing a tax break for green investments.
Prime Minister Pedro Sánchez on Wednesday announced the two-year tax would be rolled over into a third year after his cabinet’s final meeting of 2023, a move that will anger companies that have criticised it as unfair and harmful to business.
The tax was introduced to fund measures to alleviate the impact of inflation on Spanish citizens, including by funding subsidies for fuel and public transport. It was focused on businesses that the government said had been benefiting most from high interest rates and energy prices.
The tax is set to raise about €3bn in 2023, its first year, and will now also be payable in both 2024 and 2025.
But in a significant amendment to the windfall tax, Sánchez said the cabinet had agreed to let energy companies deduct the value of certain investments from their taxable income or revenue.
The PM said companies would, from January 1, be able to deduct “strategic investments linked to industrial projects and also linked to the decarbonisation of the production system in our country”.
There was no relief for banks, however. One senior government official noted that even though interest rates had come down, banks’ profit margins remained high. “So the argument [for relief] there is less solid,” the official said.
For Spain’s biggest banks, the tax is a levy of 4.8 per cent on their income from interest and commissions. Large energy companies pay a 1.2 per cent levy on revenues.
When it unveiled the plan for the tax in 2022, the government argued it was promoting “fiscal justice” so that businesses with the greatest earnings “make an effort to help the majority in society”.
The windfall tax has been criticised by banks including Santander and CaixaBank and energy groups such as Repsol and Iberdrola.
Most of the affected companies have launched appeals against the tax at Spain’s National High Court, and challenged it directly at Spain’s tax agency after making their first payments. The government has signalled its confidence that the tax will withstand legal challenges.
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