EU Advocate General Argues Against RWE and E.ON in Case About Nuclear Fuel Rod Tax – CJEU and Federal Constitutional Court Still Have to Decide

The fight of German nuclear power plant operators RWE and E.ON against the nuclear fuel rod tax suffered a setback. Yesterday, Advocate General Maciej Szpunar delivered an opinion for the Court of Justice of the European Union (CJEU) in which he said that the tax neither violated EU legislation on energy products including electricity nor on excise taxes. He also dismissed a violation of EU state aid law and the Euratom Treaty. CJEU is not bound by his opinion and still has to decide. Besides, legal action against the nuclear fuel rod tax is still pending at the Federal Constitutional Court in Karlsruhe. The multi-billion legal fight is therefore not over yet.

1. Background Information on Nuclear Fuel Rod Tax

The Nuclear Fuel Rod Tax Act (KernbrStG) has applied since 1 January 2011. A tax liability arises when plutonium and uranium fuel rods are installed in a nuclear reactor that serves commercial purposes for the first time, leading to a chain reactiontt.

The law was adopted in 2010 and formed part of the Conservative/Liberal Energy Concept 2010 with which the government extended the operating times of the 17 German nuclear power plants. Nuclear power was then intended to provide a bridging technology for a future renewable energy supply. In political reality, the fuel rod tax was meant to skim off additional profits for the nuclear power plant operators arising from the operating time extension.  However, as this “excess profit skimming” justification was legally doubtful from the start, the official legislative reasoning of the fuel rod tax did not mention the real reason of the fuel rod tax, but used a consumption tax reasoning instead.

After the nuclear accident in Fukushima in March 2011 the government reversed its nuclear policy. It proposed comprehensive legislative changes, including a nuclear phase-out until 2022 and the immediate shut down of eight nuclear power plants. While the anticipated additional profits therefore fell away, the nuclear fuel rod tax was, however, not abolished. In 2010, before the shutdown of the eight oldest German nuclear plants, the government expected to collect EUR 2.3 billion per year between 2011 and 2016 from the nuclear fuel rod tax.

Various nuclear power plant operators filed tax declarations when exchanging nuclear fuel rods and simulantuously brought legal action.

2. Referral to Federal Constitutional Court and CJEU by Fiscal Court of Hamburg

The Fiscal Court of Hamburg expressed doubts regarding the constitutionality of KernBrStG, arguing it was not a consumption tax (despite being called so in Section 1 para. 1 sent. 2 KernBrStG) so that the German Federation did not have the competence to enact it. In September 2011 the Fiscal Court of Hamburg therefore granted preliminary relief. In a decision of 9 March 2012 the Federal Fiscal Court (BFH) reversed this decision. In main proceedings, however, the Fiscal Court of Hamburg adhered to its opinion and referred the case the Federal Constitutional Court (BVerfG).

In two other preliminary injunction proceedings against the KernbrStG, the Fiscal Court of Munich also had serious doubts as to the legality of the KernbrStG, while the Fiscal Court of Baden-Württemberg decided otherwise.

In November 2013 the the Fiscal Court of Hamburg decided to also refer the case of a nuclear power plant in Lingen operated by Lippe-Ems GmbH versus the Main Customs Office of Osnabrück concerning the nuclear fuel rod tax to the Court of Justice of the European Union (CJEU) for a preliminary ruling to clarify compatibility with European law (this case relates to another nuclear power plant than the one referred to BVerfG). Lippe-Ems GmbH is owned by RWE (87.5%) and E.ON (12.5%).

3. Opinion of Advocate General Szpunar

a. Admissibility of Referral in View of Referral to BVerfG in Other Case Concerning the Tax

In Mr Szpunar’s opinion the Fiscal Court of Hamburg was entitled to ask for a preliminary ruling by CJEU pursuant to Article 267 TFEU. One of his main arguments is that the effectiveness of EU law would be in danger if a court that had to submit a case to the national constitutional court pursuant to national law could not also ask CJEU for a ruling on the interpretation and validity of EU law to decide whether a national provision was compatible with EU law (see no. 19).

b. Incompatibility of Nuclear Fuel Rod Tax with Directives 2003/96/EC and 2008/118/EC

Mr Szpunar also considered the nuclear fuel rod tax compatible with Council Directive 2003/96/EC
restructuring the Community framework for the taxation of energy products and electricity and its Article 14 para. 1 a that exempts ” energy products and electricity used to produce electricity” from excise taxes. In Mr Szpunar’s opinion the exemption does not cover nuclear fuel (see no. 40).

Mr Szpunar also argues that the nuclear fuel rod tax is not an indirect tax. Thus it does not infringe Council Directive 2008/118/EC concerning the general arrangements for excise duty in connection with Directive 2003/96/EG (see no. 49).

Whether Mr Szpunar’s opinion, should it be followed by CJEU, will influence the pending case at BVerfG remains to be seen.

c. Infringement of Art. 107 TFEU and the Euratom Treaty

Mr Szpunar also denied an infringement of Art. 107 para. 1 TFEU. The fact that the nuclear fuel tax was only levied on nuclear power operators did not constitute state aid in favour of other power plant operators (see no. 74). Hence, Mr Szpunar did not further examine if a company could challenge the tax in order to get an exemption.

Mr Szpunar also examined the infringement of various Euratom provisions by the nuclear fuel tax, but found no violation.

4. Decision by CJEU and BVerfG

CJEU will now have to decide the case. Although the court has often followed the opinions of the Advocates General it is not bound by Mr Szpunar’s opinion (lately the court deviate from the Advocate General’s opinion in two other energy-related cases, the Alands Vindkraft case and the Essent case). A decision by CJEU may come in the first quarter of 2015.

While the decisions of the CJEU and the BVerfG cover separate areas of law (European law and German constitutional law), they touch on certain tax law issues, including the question of whether the fuel rod tax is a lawful consumption tax, albeit from different perspectives. Depending on the CJEU’s ultimate decision, this may also affect the BVerfG’s decision.

When BVerfG will decide on the German case is not yet clear.

Source: European Court of Justice

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