Dutch Emissions Authority gives incorrect interpretation taxpayer under Temporary Act on Inframarginal Electricity Tax (IME)

Using a hypothetical situation, Renée Fennis and Erwin Noordover discuss the background, content, scope and implementation of the Temporary Act on Inframarginal Electricity Tax (IME). They question the NEa’s IME implementation policy and foresee encumbrance procedures and discussions that cannot be the intention of the legislators.

Summary: Only the electricity producer can be taxable

The owner of logistics buildings leased his roofs to a solar panel operator, who installed solar panels on the roof space he leased. In 2022, energy prices rose to record highs, from which energy-producing companies profited substantially. These profits led European politicians to impose a solidarity levy through an additional tax above a set threshold price per megawatt-hour of electricity.

In the Netherlands, this levy is included in the Temporary Act on Inframarginal Electricity Tax, which can impose retroactive tax assessments on power producers. The size of the assessment requires producers to submit a report of their market revenues. The first invitations to do so have now been sent out. This so-called market revenue report for the period December 2022 to 30 June 2023 must be submitted to the Tax Authority by 1 April 2025, after which the assessments will follow.

Currently, the Dutch Emissions Authority (hereinafter: NEa), as implementing body of this law, uses the grid connection as the starting point to determine who the taxpayer is. In this case, the owner of the property is also registered as the owner of the connection, although he is not the energy producer. In fact, in 2022 and 2023, it was the operator of the solar panels on the roof. The formal invitation to file the report and pay the tax has now gone to the property owner simply because the connection is in his name.

The law provides no ground for the NEa to designate a party other than the producer himself as a taxpayer. At the time, no arrangements were made between owner and tenant for any recovery options between them either, as this law did not exist then. Therefore, the NEa’s position results in significant legal discussions and we question the interpretation of the law and have elaborated on it in our blog below.

For advice on the IME or an approach to notices from the NEa and/or the Tax Administration, contact Renée Fennis (real estate law), Erwin Noordover (energy & clean tech) and Christiaan Oudemans (tax) of NewGround Law.

---

Temporary Act on Inframarginal Electricity Tax (IME)

On July 25, 2024, the Temporary Act on Inframarginal Electricity Tax (hereinafter: “IME”) entered into force. Under this law, the government imposes a tax, the inframarginal electricity tax, on the revenues that certain electricity producers generated between December 1, 2022, and July 1, 2023. The implementation of the IME has been assigned to the Dutch Emissions Authority and the Tax Administration.

Background of the IME

The direct reason for introducing the IME is European Regulation EU 2022/1854, which entered into force on October 8, 2022 (hereinafter: the Regulation).^[1]Parliamentary Papers II 2023/34, 36453, nr. 3, p. 2 (EM). This Regulation was intended as an emergency intervention in response to sharp increases in electricity prices caused by geopolitical tensions and climatic developments.^[2]Consideration 1 and 3 of Council Regulation (EU) 2022/1854.

The Regulation required Member States to impose profit-limiting measures on certain electricity producers, capping their market revenues. The positive difference between these producers’ market revenues and the ceiling set by Member States must be used to mitigate the effects of exceptionally high electricity prices for end consumers (businesses and households).^[3]Consideration 46 of Council Regulation (EU) 2022/1854.

Scope and Content of the IME

The IME is aimed at electricity producers that generate power using an inframarginal energy source or coal.^[4]Section 2 in conjunction with section 3, paragraph 1, of the IME. Inframarginal energy sources include wind and solar energy.^[5]Article 1 in conjunction with article 7, paragraph 1, of Council Regulation (EU) 2022/1854. Regarding solar energy, both thermal and photovoltaic solar energy are included. The term ‘producer’ under the IME refers to (legal) persons who generate electricity.^[6]Parliamentary Papers II 2023/34, 36453, nr. 3, p. 48 (EM).The IME only applies to producers using a production installation with an installed capacity of at least 1 megawatt, which is fed into the electricity grid or a direct line.

The inframarginal electricity tax is levied on “the sum of taxable market revenues from electricity generated and fed into the grid or direct line by the producer during the taxation period, as evidenced by the market revenue report”.^[7]Section 5, paragraph 1, of the IME. The IME has been introduced retroactively, applying to the past period from December 1, 2022, to July 1, 2023.^[8]Section 4, paragraph 1, of the IME. In principle, all market revenues from the production of the specified electricity fed into the grid or direct line are subject to the IME.^[9]This subject to a limited number of exceptions mentioned in section 3, paragraph 3, of the IME Electricity consumption behind the meter is not considered since it does not generate market revenue.^[10]Parliamentary Papers II 2023/34, 36453, nr. 3, p. 55 (EM).

For electricity generated using solar energy, market revenues up to EUR 130 per megawatt-hour are exempt.^[11]Section 9, sub c, of the IME. Above this threshold, the inframarginal electricity tax amounts to 90% of the taxable market revenues.^[12]Section 6 of the IME.

Implementation of the IME: The Role of the NEa

The implementation of the IME is divided between the Tax Administration and the NEa. The Tax Administration is responsible for levying and collecting the tax owed.^[13]‘Algemene informatie IME’, emissieautoriteit.nl. On the other hand, the duties of the NEa are – among other things–  determining the group of taxpayers and ensuring compliance. The NEa receives market revenue reports from producers and communicates the amount of tax due to the Tax Administration.^[14]Inframarginale Elektriciteitsheffing (IME) infographic’, belastingdienst.nl. The responsibility for determining the IME amount initially lies with the electricity producer.^[15]Parliamentary Papers II 2023/34, 36453, nr. 3, p. 5 (EM). If the producer fails to submit a (correct) market revenue report, the NEa can determine the taxable market revenue itself.^[16]Parliamentary Papers II 2023/34, 36453, nr. 3, p. 47 (EM).

To establish the amount of tax owed by a producer, it is crucial to determine the exact amount of electricity generated. This requires a measurement point.^[17]Parliamentary Papers II 2023/34, 36453, nr. 3, p. 47 (EM). Since electricity transport is essential for generating market revenues, the amount of electricity fed into the grid or a direct line is used as the measurement standard.^[18]Parliamentary Papers II 2023/34, 36453, nr. 3, p. 47 (EM). The connection of the production installation to the electricity grid or direct line is thus relevant in determining (i) whether IME is owed and (ii) if so, how much.

This aligns with the NEa’s method of calculating the tax due. The NEa states on its website:

“The taxable event of the law is calculated based on the amount of electricity the producer has fed into the electricity grid or a direct line. The registration name on the connection, through which this electricity is fed, therefore determines who is classified as a producer.”^[19]Verhuurconstructies’, emissieautoriteit.nl.

From this statement, it follows that the NEa uses the connection registration – specifically, the name on the registration – to determine who is considered the producer of the generated and fed-in electricity.^[20]Parliamentary Papers II 2023/34, 36453, nr. 3, p. 48 (EM). While the legislator has not explicitly prescribed how the producer should be designated, we believe that this implementation policy contradicts the principles of the IME. During the parliamentary discussions, it was explicitly stated that the producer does not necessarily have to be the owner of the production installation and vice versa.

The decisive factor is which natural or legal person generates electricity using the production installation and who benefits from the generated electricity or its proceeds: the operator. The NEa assumes that the party registered on the connection is the producer according to the law, but in our view, this interpretation is incorrect.

Consequences of the NEa’s Position

Strict enforcement of the NEa’s interpretation could lead to problematic situations. For instance, suppose a building owner leases the roof to a third party operating a PV installation, while the connection is registered under the lessor’s name. In that case, the NEa would designate the building owner (the lessor) as the producer and, therefore, as the taxpayer.^[21]Parliamentary Papers II 2023/34, 36453, nr. 3, p. 50 (EM). This means the building owner must pay the IME and file a tax return with the Tax Administration.^[22]Parliamentary Papers II 2023/34, 36453, nr. 3, p. 50 (EM). However, the revenues from electricity generation using the PV installation are not earned by the building owner/lessor but rather by the tenant or PV operator. Thus, the NEa’s interpretation of the rules is not consistent with the law itself or the intent of that law.

In addition to IME tax assessments from the NEa and the Tax Administration, such a situation could cause friction with tenants or building users who share the same grid connection—especially if lease agreements lack clear terms about passing on certain tax obligations. To make matters worse, if the obligated party fails to submit the market revenue report to the NEa on time, the Minister of Climate and Energy can impose a penalty or a significant fine. This fine can be up to EUR 1,030,000 or – if higher – up to 10% of the company’s revenue from the previous financial year.^[23]Section 16 of the IME; Parliamentary Papers II 2023/34, 36453, nr. 3, p. 35, 65 (EM).

Conclusion

Electricity producers within the scope of the IME must submit a market revenue report to the NEa and file a tax return with the Tax Administration by April 1, 2025. Logically, the amount of electricity fed into the grid or direct line is used as the basis for determining taxable market revenues. However, the NEa currently uses the name on the grid connection as the sole indicator to determine who qualifies as a producer and, consequently, as the taxpayer. This is obviously not in line with the text of the law itself and is at odds with the legislator’s intent. As a result, a party will be classified as a taxpayer, even though it does not operate the production installation and therefore does not generate income form electricity production.

The NEa’s position will likely lead to businesses being incorrectly classified as producers under the IME, entangling them in a complex bureaucratic process, only to be rectified through appeals. Meanwhile, the actual operators/producers may not receive notifications and could inadvertently fail to comply with legal reporting and tax obligations – potentially facing severe enforcement consequences.

In a timeline on its website, the NEa announced that formal invitations for market revenue reports and tax returns will be issued in February 2025. Should you be wrongly notified as a producer, it is important to alert the Nea as soon as possible before the report and tax return date of 1 April 2025.

---