Ossian Smyth (Dún Laoghaire, Green Party) | Oireachtas source

I move: "That the Bill be now read a Second Time."

I am pleased to address the House on the Second Stage of the Energy (Windfall Gains in the Energy Sector) (Temporary Solidarity Contribution) Bill 2023. As Deputies are aware, the Russian invasion of Ukraine in early 2022 led to exceptionally high energy prices. The wholesale price of natural gas increased significantly from a long-term average of circa 50 pence per therm to over ten times this level in August 2022. The price level has since reduced and is now approximately twice the long-term average.

The Irish Government is aware of the financial strain on households and businesses in Ireland because of the exceptionally high energy prices and has introduced numerous supports to off-set the increase in energy prices for homes and businesses. The Government implemented a €2.4 billion package of supports during 2022 and a package of once-off measures worth €2.5 billion, which were included in budget 2023. Council Regulation 2022/1854 on an emergency intervention to address high energy prices came into force in October 2022, which provided for a mandatory temporary solidarity contribution, TSC, on fossil fuel production and refining and a cap on market revenues of certain electricity generators that earn unexpected surplus profits due to unforeseen circumstances. The regulation also provides for reductions in electricity demand consumption by member states.

Under the regulation, the calculation of the TSC is to be at least 33% of the taxable profits for the fiscal years 2022 or 2023. It is 33% on those profits that are more than 20% above the average taxable profits in 2018 to 2021. On 22 November 2022, the Government decided that the TSC will apply for 2022 and 2023; that the taxable profits that are more than 20% above the baseline period from 2018 to 2021 will be subject to a rate of 75%; that losses from previous years will not be taken into account in the calculation of the taxable profits; and that the Revenue Commissioners will administer the temporary solidarity contribution.

The Bill will implement the TSC. The cap on market revenues will be implemented through a separate Bill, the energy (windfall gains in the energy sector) (cap on market revenues) Bill 2023, which will be published before the summer recess, and the reductions in electricity demand consumption measures have been implemented. The main purpose of the Bill before us is to provide for the temporary solidarity contribution of Council Regulation 2022/1854 of 6 October 2022 on an emergency intervention to address high energy prices, in accordance with the Government decisions on the implementation of this regulation. This Bill also provides for the TSC to be under the care and management of the Revenue Commissioners. This Bill contains four Parts, 26 sections, and one Schedule. The Bill amends the Taxes Consolidation Act 1997, the Act of 1997, through the insertion of a new Part 24 B, which provides for the definition of taxable profits, the definition of average taxable profits for the purposes of TSC, and the deductibility of the TSC from corporation tax.

I will begin by providing a brief overview of the most important measures the Bill addresses before discussing them in more detail. The legislation will provide for TSC to be payable by companies with activities in the fossil fuel sector, such as production or refining of natural gas, coal, petroleum, or manufacture of coke oven products, carried on in the State for the fiscal years 2022 and 2023. The TSC is 75% of taxable profits, which are 20% above the average of taxable profits in a baseline period of 2018 to 2021.

This Bill amends the Act of 1997 through the insertion of a new Part 24 B, which provides for the definition of taxable profits, the definition of average taxable profits for the purposes of TSC, and the deductibility of the TSC from corporation tax. These definitions for taxable profits and average taxable profits for the purposes of TSC provide for a calculation of TSC in the same manner as profits chargeable to corporation tax, subject to the exceptions I shall now outline.

Losses prior to 1 January 2018 will not be deductible in calculating taxable profits and average taxable profits for each of the years 2018 to 2023 for the purposes of the TSC. Losses post 31 December 2023 will not be deductible in calculating taxable profits for the purposes of the TSC. Group relief claimed in an accounting period falling wholly or partly in the years 2018 to 2023 will not be deductible in calculating taxable profits for the purposes of the TSC. Group relief surrendered in an accounting period falling wholly or partly in 2018 to 2023 will be disregarded and therefore deductible in calculating taxable profits for the purposes of the TSC.

Capital expenditure on the acquisition or construction of allowable tangible assets will be deductible in full, in calculating taxable profits in respect of 2018 to 2023 for the purposes of the TSC, in the calendar year that such assets are brought into use. Such capital expenditure will be deductible in addition to relevant capital allowances which may already have been deducted in calculating taxable profits as per normal corporation tax rules.

The TSC is not a tax. As a result, the Revenue Commissioners require powers in order for TSC to be brought under their remit and management. The Bill provides the Revenue Commissioners with powers to administer, collect, undertake assessments of returns and enforce, through surcharge, interest, penalties and offences, the TSC. The purpose of this is to ensure timely and efficient collection of the TSC from companies. This money will then be remitted to the Exchequer. The Bill also provides an appeal mechanism to the Appeals Commissioners - the Tax Appeals Commission - for companies that are aggrieved by assessments made by Revenue Commissioners.

I propose to provide a more detailed overview of the Bill and each of its four Parts. Part 1 contains standard legislative provisions that cover the Short Title, commencement, definitions of terms used and a standard provision enabling the expenses of the Minister to be paid out of moneys provided by the Oireachtas.

Section 2 defines relevant activities as meaning: "economic activities, carried on in the State or in a designated area (within the meaning of the Maritime Jurisdiction Act 2021), in the field of the extraction, mining or refining of natural gas, coal, petroleum or manufacture of coke oven products as referred to in Regulation (EC) No. 1893/2006 of the European Parliament and of the Council of 20 December 2006." The TSC will be calculated in the same manner as profits chargeable to corporation tax, subject to the certain adjustments. Corporation tax in Ireland is based on worldwide profits. Therefore, the relevant activities have been restricted to the Irish State, onshore and offshore, in order to avoid the potential for Irish tax-resident companies with activities in other member states being subjected to the TSC by both member states. The section defines an energy company as meaning a company that generates at least 75% of its turnover in a chargeable period from relevant activities. The chargeable period means the 12-month period commencing on 1 January in each of the years 2022 and 2023.

Part 2 provides for the calculation of the TSC, for TSC to be under the care and management of the Revenue Commissioners and a mechanism to allow appeals to the Appeals Commissioners. This Part also provides for energy companies’ obligations with regard to registering, making returns to the Revenue Commissioners and retaining records.

I wish to draw particular attention to the following provisions of Part 2. Section 4 provides for a levy to be known as the temporary solidarity contribution on the taxable profits of each energy company in respect of each chargeable period. It also provides for the calculation of the TSC with a 75% rate and for the TSC to be payable to the Revenue Commissioners on or before the specified date, 23 September 2023 and 23 September 2024.

Section 5 provides that where an arrangement is not made for bona fide commercial reasons or made to reduce or avoid the amount of payable TSC will not be taken into account in the calculation of taxable profits for the purposes of the TSC.

Section 6 provides for the TSC to be under the care and management of the Revenue Commissioners.

Sections 7, 8 and 16 provide for the obligations of an energy company with respect to the TSC. These obligations include issuing notifications to the Revenue Commissioners by certain dates, the preparation and delivery of returns in respect of the TSC and the retention of records that are required to make returns in respect of the TSC.

Section 15 provides for an energy company to make an appeal to the Appeal Commissioners in respect of a Revenue assessment or amended assessment within 30 days after the date of notice of the assessment or amended assessment. It also provides that a surcharge, a self-assessment or the amount of taxable profits specified in a self-assessment cannot be appealed.

Part 3 provides for enforcement measures for the TSC to ensure a timely and efficient collection of it by the Revenue Commissioners.

I wish to draw attention to the following provisions of Part 3. Section 17 provides for a percentage increase or surcharge on the TSC returns that are not delivered by the specified date. The surcharge to be applied is 5% where a return is not delivered within three to six months of a specified date and 10% where a return is not delivered within six months of a specified date. Due to the short time in between the potential enactment date of the Bill and the first payment date on 23 September 2023, it was considered fair not to impose a surcharge for the first three months. Section 17(2) provides for caps on the amount of surcharge that can be added to a late return.

Section 18 provides for interest on overdue amounts based on a formula that is set out in the Bill. The formula is the amount of that TSC which remains unpaid multiplied by the number of days it remained unpaid multiplied by a rate set out in section 1080(2)(c)(i) of the Act of 1997.

Sections 19 to 21, inclusive, provide for a penalty of €3,000 where an energy company fails to deliver a return on or before a specified date, where an energy company fails to comply with a notice to make a particular item available for inspection or where an energy company fails to retain records in accordance with this Bill. Section 21 provides for other penalties, such as deliberately or carelessly making incorrect returns or failing to make certain returns, etc.

Section 22 provides for sections 1078 and 1079 of the 1997 Act in regard to certain revenue offences to be applicable to the TSC. Part 4 amends the Act of 1997 by means of the insertion of a new Part 24B and new sections 697R, 697S, 697T and 697U. I wish to draw attention to the following provisions of Part 4.

Section 23 inserts new section 6975S into the Act of 1997, which will provide for the calculation of taxable profits for purposes of the TSC, as for corporation tax, reduced by allowances for charges on income as per section 243(2) of the Act of 1997 and capital expenditure incurred on the construction or acquisition of a tangible asset used in the course of carrying on relevant activities in 2018 to 2023. The following shall not be taken in account in calculating taxable profits for purposes of the TSC as set out in section 23(4), namely, relief in respect of loss incurred in the carrying on of a trade consisting of relevant activities in an accounting period that ends on or before 31 December 2017 or an accounting period that commences on or after 1 January 2024, group relief set off or surrendered under sections 420 or 420A of the Act of 1997 or TSC incurred.

Section 23(5) provides for the treatment of losses in the calculation of taxable profits. Section 23(6) provides for the calculation of taxable profits where an energy companies accounting period does not align with a calendar year. In addition, section 23 inserts new section 697T into the Act of 1997. The latter will provide for the calculation of average taxable profits in a baseline period and for partial trading years and non-operating trading years in the baseline period. This section also provides that where the average taxable profits are less than zero, then the average taxable profits shall be zero for the calculation of the TSC.

The Schedule provides for consequential amendments to the Act of 1997. There are also amendments to the Ministers and Secretaries (Amendment) Act 2011 and the Finance (Tax Appeals) Act 2015 to include the Energy (Windfall Gains in the Energy Sector) (Temporary Solidarity Contribution) Act 2023.

The Bill also includes some consequential and technical amendments, but the provisions that I have outlined cover the principal issues. I commend the Bill to the House and look forward to the debate on it.

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