New green taxes

Operators of certain facilities that receive free emission allowances will be subject to a substantial new tax and fee

The recently published Government Decree No. 320/2023. (VII. 17.) has introduced two new payment obligations for operators of facilities that receive a significant amount of free emission allowances. The payment obligations are already applicable in 2023.

Who is affected?

Operators of facilities that benefit from a significant amount of free emission allowances are operators whose facilities:

• were allocated free emission allowances equal to at least 50% of their average total verified CO₂ emissions in the year preceding the current year, as well as in the preceding three years, and
• had annual average verified CO₂ emissions of over 10,000 tonnes in the three years preceding the current year.

Accordingly, the new payment obligation applies to facilities that had average annual emissions of more than 10,000 tonnes in the above periods and were allocated a free quota of at least half their average annual emissions.

CO₂ quota tax

The tax base is the amount of tCO₂ emissions of the operator of the facility that receives a significant amount of free emission allowance, determined in accordance with Act CCVII of 2012.

The tax rate is the HUF equivalent of EUR 40/tCO₂.

Taxable persons must pay quarterly tax advances – in the amount of the tax calculated for the tax base in the quarter concerned – and indicate the amount of these tax advances in their tax returns.

Annual tax returns on the CO₂ quota tax must be submitted to the tax authority for each tax year, by 31 May of the year following the tax year. The total of tax advances must be topped up to the actual tax liability by this date. If the amount of advances that taxable persons have paid exceeds the amount of their annual tax liability, they may request a refund in their annual returns.

The tax liability applies retrospectively to the entire tax year starting after 31 December 2022. The tax advances for the first, second, and third quarters of the 2023 tax year must be declared and paid by the 15th day of the month following the third quarter.

The tax base may be reduced by 50% in the tax return on the basis of the taxable person's verified emission report for the current year, if the following conditions are met:

• the level of the taxable person’s CO₂-emitting production has reached or exceeded at least 90% of the capacity specified for its core activity in the single environmental authorisation,
• the taxable person’s capacity specified for its core activity in the single environmental authorisation valid on the date on which the Government Decree took effect, has not decreased compared to the capacity specified in the single environmental authorisation for the year preceding the year concerned, and
• the taxable person’s specific CO₂ emission – per unit of production – has decreased at least by the linear reduction factor used in the European Union's emission trading system and expected by the European Union.

So, the tax base may be reduced if the taxable person has achieved an actual CO₂ emission reduction of 2.2% in 2023 and 4.3% from 2024, while maintaining its capacities and production volume.

Transaction fee

From 2023, the sale of free quotas will also be subject to payment of a fee: operators of facilities receiving a significant amount of free emission allowances will have to pay a transaction fee for the transfer of free CO₂ quotas.

The transaction fee is 10%, calculated on the basis of the EEX-EUA stock market price valid on the date on which the free quota is transferred as part of the transaction or on the last stock exchange trading day preceding that date and the daily mean exchange rate quoted by the National Bank of Hungary.

Operators must report transactions subject to the transaction fee to the authority responsible for climate protection within 10 days following the date on which such transactions were conducted. The authority responsible for climate protection will send a statement on the transaction fee liability, which the operator must pay within 30 days.

Suggested steps

The first and most important step in relation to the new obligations is to determine whether the entity meets the definition of a taxable person, that is, to what extent it has been allocated free emission allowances and how much its verified CO₂ emission was.

The entities concerned should consider the following options:

• examining compliance with the conditions for reducing the CO2 quota tax base and assessing whether the entity could meet the criteria for the tax base reduction in the future by introducing measures for a reduced emission.
• postponing the transfer of the free allowance, especially if there is a chance that the facility will use it later.

If you have any questions regarding the above, please contact our colleagues below.

László Deák
Partner
Email: laszlo.deak@pwc.com

Gábor Farkas 
Partner
Email: gabor.farkas@pwc.com

Barbara Koncz 
Partner
Email: barbara.koncz@pwc.com

Balázs Szük
Senior Manager
Email: balazs.szuk@pwc.com