The accelerated increase in natural gas and electricity prices starting in the second half of 2021, with a significant impact on inflation, has led to a series of intervention and consumer support measures among the member states of the European Union, such as the temporary solidarity contribution from crude oil, natural gas, coal and refining companies, according to an analysis by Andreea Mitiriță, Partner and Cristina Fuioagă, Director, PwC.

The current context is truly unprecedented, both globally, regionally and locally, and requires intervention measures, but these must be balanced in such a way as to ensure energy security, protect vulnerable consumers, not discourage investment and at the same time to enable the proper functioning of the energy market, PwC officials claim.

Regulation (EU) 2022/1854 on an emergency intervention to tackle the problem of high energy prices comes with a series of measures that must be respected in the process of reviewing existing national policies.

But at the same time, the Regulation provides that Member States should apply the solidarity contribution established by this Regulation, unless they have already adopted equivalent national measures.

On December 29, 2022, the government published the Emergency Ordinance No. 186/2022 (OG no. 186/2022 regarding some measures to implement the EU Regulation in the Romanian market).

However, considering that Romania already has a rich fiscal regime in terms of taxes, fees and contributions owed by players in the oil and natural gas industry, the Romanian authorities should analyze in detail to what extent these are equivalent to the solidarity contribution proposed by the Regulation and implicitly the impact of this new contribution on investments in the sector.

Thus, the implementation of the measures of the EU Regulation must be carried out simultaneously with the revision of the national legislation in order to ensure the proper functioning of the energy market.

In this sense, in the explanatory note for GEO no. 186/2022, the Romanian authorities specify that “the fiscal obligations generated by the respective taxes (i.e. those from the applicable legislation until the introduction of the Ordinance) have a taxable base and settlement conditions different from those established by Regulation (EU) 2022/1854 for the contribution of solidarity, but they also ensure the capture and taxation of a part of the additional profits made by these economic operators, the respective taxes being deductible when calculating the profit tax.”

However, at the moment, from the information available, there is no impact study or comparative analysis of the impact of this new contribution by correlation with the already existing taxes and fees for the over-taxation of companies in the field of the oil and natural gas industry.

What does Ordinance No. 186/2022 stipulate?

This Ordinance introduced a new solidarity contribution for the category of taxpayers which carry out activities in the crude oil, natural gas, coal and refinery sectors, which are subject to Regulation (EC) no. 1893/2006 of the European Parliament and of the Council of December 20, 2006 establishing the NACE statistical nomenclature of economic activities – the second revision and amending Regulation (EEC) no. 3037/90 of the Council, as well as certain EC regulations regarding specific statistical fields, with CAEN codes: 0610 – “Crude extraction”, 0620 – “Natural gas extraction”, 0510 – “Coal extraction”, 1910 – “Manufacture of coking products ” and 1920 – “Manufacture of products obtained by oil refining” and which have the share of these activities in the turnover of over 75%, inclusively.

In short, the solidarity contribution is calculated by applying a rate of 60% (significantly higher than the minimum rate of 33% in the Regulation) on the taxable profit of the year 2022/2023 that exceeds by more than 20% the average taxable profits related to the financial years from the period 2018 – 2021.

The solidarity contribution is calculated, declared and paid annually by the 25th of June inclusive of the following year or by the 25th of the sixth month inclusive from the end of the modified fiscal year/different financial year.

What is the current tax regime in Romania for companies in the oil and natural gas industry?

On the other hand, Romania has already implemented for many years a specific taxation system for the oil and gas sector (e.g. additional taxes, oil royalties), which makes profits from this sector subject to a higher effective tax rate than the standard corporate tax rate of 16%.

More precisely, both in Romania and in other European states we encounter royalties, taxes, fees or additional contributions applied to the oil and natural gas industry in conjunction with the general taxation rules specific to each state. Therefore, the fiscal environment applicable to Romanian companies operating in the oil and natural gas industry consists of:

⮚ the general taxation system, such as profit tax, income tax, VAT, excise, customs, taxes and local taxes

and

⮚ sector-specific taxation system (oil and natural gas), such as:

• oil royalties due for the production of crude oil and natural gas;
• taxes on additional revenues from the sale of onshore, offshore and deep onshore natural gas;
• additional tax applicable to crude oil production;
• the contributions due for the production of electricity in the plants owned by the holders of oil agreements;
• the contributions owed by the holders of oil agreements for the natural gas and electricity trading activity;
• other specific contributions related to the sector.

Other energy price interventions

At the level of Romania, the intervention measures started with the Emergency Ordinance (EOG) no. 118/2021 regarding the establishment of a compensation scheme for the consumption of electricity and natural gas for the cold season 2021 – 2022, the law approving it, GEO no. 27/2022, GEO no. 106/2022, GEO no. 119/2022.

Also, on December 13, 2022, Law no. 357/2022 for the approval of the provisions of GEO no. 27/2022, subsequently amended by GEO no. 119/2022 was published in the Official Gazette and entered into force on December 16, 2022. This law came with various changes regarding the capping of energy prices for final consumers, the implementation of a mechanism to withhold the Contribution to the Energy Transition Fund in the case of energy producers concluding hedging contracts, making changes/clarifications to the terms used in the contribution calculation formula.

In conclusion, the introduction of the new solidarity contribution should be re-analyzed in the context of the current fiscal regime applicable to this industry so that the measure does not have negative long-term consequences by restricting the development of this sector in Romania, a sector that otherwise makes a significant contribution to the budget state, and implicitly to Romania’s economy.