Supreme Court of Spain: the natural gas used in the generation and cogeneration of electricity and heat should be exempt from the special tax on oil and gas

The Supreme Court handed down several judgments in July 2024 on cassation appeals 4232/2021, 4887/2021 and 5472/2021, the latter in which Garrigues acted as legal counsel, where the court held that the natural gas used in the generation and cogeneration of electricity and heat is exempt from special tax on oil and gas.

The taxation of the natural gas used in that activity was introduced by Law 15/2012, of December 27, 2012, of tax measures for energy sustainability, and the rationale given in the preamble of that law was that electricity generation activities using fossil fuel constitute an important source of greenhouse gas emissions. That law was in force from January 1, 2013, to October 7, 2018.

According to the court, this activity should be exempt pursuant to article 14.1a) of Council Directive 2003/96/EC of 27 October 2003 restructuring the Community framework for the taxation of energy products and electricity. Although that exemption can be eliminated, according to the Directive itself, for “reasons of environmental policy,” the court ruled that the rationale given in the preamble of the law does not meet the requirements of the Directive or of the Court of Justice of the European Union (CJEU) for this purpose.

Specifically, the court recalled that the CJEU, in its judgment of June 22, 2023 on case C-833/21, Endesa, regarding the coal used in electricity generation, already held that (i) the revenue from the Spanish tax on oil and gas is not specifically allocated to environmental policies (given that it is included in the public treasury just as any other tax revenue, without a predetermined use); and that (ii) the tax does not distinguish between whether the electricity is produced by a conventional power station (coal or cogeneration facilities) – more efficient – or whether the natural gas is used intensively or minimally, or whether it is used in facilities that are more or less contaminant. In short, according to the court, this tax has been defined without taking into account the environmental consequences derived from the use of natural gas.