Proposal for new property taxation as regards production of electricity and heat

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PwC-skatteradgivning-Lightbulb-1-solid_0004_red.pngIn the autumn of 2014, the Government appointed a new committee to undertake a review of property taxation and of the taxation of electricity producing units. The committee’s proposal implies, amongst other things, that the differences in taxation between the various types of power production are, partly, adjusted for. Furthermore, the basis for the levying of property tax is extended to include facilities for sun and wave power production. The framework of the current regulations was established in conjunction with the regulations for general property taxation being adopted in 2000.

The Committee’s proposal (SOU 2016:31) implies, in summary, the following.

Heating plants

Today, heating plants for the production and distribution of warm water for heating are non-taxed special entities. That heating production plants are exempt from property tax while combined heating and power stations are not exempt has been seen to result in a distortion in competition between the various types of heating and power production plants.

Heating plants, which in the committee’s work are defined as buildings in which the non-commercial production and distribution of warm water or other means of heating are produced, are proposed to continue to be tax-exempt. Buildings for the commercial production of heating or cooling are proposed to be classified as other buildings (industrial units). This adjustment is done so that the value of the commercial production and distribution of heating can be taken into consideration when determining property tax.

A power station building is defined today as a building in which commercial production of high voltage electricity takes place. A power station building is proposed, in all cases, to comprise a separate building unit.

The dominant purpose principle, which is based on what the building is primarily intended to be used for, or is used for, is proposed not to apply to combined heating and power stations.

The committee also states that the buildings used for commercial production of heating and cooling due to their construction and nature will be valued according to their production costs. It is the Tax Agency who is to determine the market value levels and who is to adapt their application of the tables in the property taxation ordinance to the buildings in which heating or cooling is produced.

Buildings, which are included in the transfer or distribution network for gas, heating, electricity or water, are, today, classified as tax-free special entities (distribution buildings). The definition of a distribution building is proposed to be extended to include buildings included in the transfer and distribution network. This is proposed to apply also building used for distribution of cooling.

Sun and wave power are introduced as new heating and power plant types and some new terminology is also introduced

Sun and wave power are introduced as new types of electricity production units. Wind power is also proposed to comprise a new type of electricity production unit. Wind farms currently belong to the power station type, heat and power production unit. The tax rate for sun and wave power is proposed at 0.2 percent of taxation value.

The land on which water and wind plant buildings are located, and which comprises chattels, is proposed to incur the same tax rate as water or wind power buildings, that is, 2.8 percent, respectively 0.2 percent. Today’s rules state that the land on sites comprising non-freehold property is to be taxed at 0.5 percent.

The valuation methods for electricity producing units are proposed to comprise of the energy method (water power plants) and the effect method (other power plants). The energy method implies that the valuation is based on the production in the power station while the effect method implies that the valuation is based on the installed effect of the power station.

Cost of capital

The cost of capital in the yield calculation in determining the standard value for water power stations is proposed to be fixed. Today, interest is at 5 percent and is proposed to be unchanged at this level.

Electricity certificates

The value effect of electricity certificates for all electricity production types should be considered, according to the rules on the adjustment for special circumstances, in order that the same rules apply for all types of power production property. Today, the value of electricity certificates for wind power plants is considered in determining the standard value.

Taxation interval

A simplified property taxation system is proposed for electricity production units, to come into effect at the beginning of 2022. The standard value is adapted on the basis of the average electricity price during the base year and the five previous years. Other value impacting factors are to be unchanged in relation to the most recently general property tax assessment, if there are no clear reasons, due to market-related factors, to consider these in the determination of the standard value.

The tables which take into account the adjustments for special circumstances regarding the value impact of electricity certificates are also to be adapted to the prices in effect during the base year according to the same method as with general property taxation. Property taxation is, in general, to be based on the details providing the basis for the most recent general property tax assessment or special property taxation.

Simplified property taxation is also proposed to be introduced for industrial units to come into effect at the beginning of 2022.

The introduction of simplified property taxation between the general property tax assessments is seen to be important to achieve a more successive adaption of the tax values to price development.

Coming into effect

The proposal is proposed to come into effect on 1 January 2017 and will be applied for the first time in conjunction with the 2019 tax assessment.

Do you have any questions on Value Added Taxes, customs and excise duties?

Fredrik Jonsson

Fredrik Jonsson

Fredrik Jonsson arbetar med och är specialiserad på olika typer av punktskatter till exempel energi-, miljö-, alkohol- och tobaksskatt. Fredrik har tidigare arbetat som rättslig expert på Skatteverkets huvudkontor och på domstol.
010-212 48 01
Fredrik Jonsson specialises in various excise duty types, such as taxes on energy, environment, alcohol and tobacco. Fredrik used to work as a legal expert at the Swedish Tax Agency’s head office and at a court.
+46 10 212 48 01

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