Spanish Government Extends Energy Windfall Tax by Decree

MADRID (Reuters) -The Spanish government has issued a decree extending a temporary tax on energy companies into 2025, Prime Minister Pedro Sanchez said on Monday, after lawmakers voted last week to eliminate the levy.

The decree enters into force on Jan. 1, but it will need to be confirmed by parliament within 30 days in order to apply throughout next year as the minority government intends – which may prove difficult to achieve as its partners to the left and right are at odds on the issue.

Sanchez said that with the extension, Madrid was upholding the commitments made to its partners, as it required an “extra effort” from energy companies while at the same time introducing a tax incentive which “takes into consideration strategic investments that are essential for decarbonisation”.

The tax credits had been demanded by the centre-right Catalan separatist party Junts and Basque nationalists PNV, who argue that the levy impacted investments in their respective regions.

Utilities have warned that extending the levy of 1.2% for companies with a turnover of at least 1 billion euros ($1.04 billion) would jeopardise 30 billion euros in renewable energy investments.

The temporary tax was introduced in 2022 to ease cost-of-living pressures for ordinary Spaniards as firms gained from a surge in energy prices following the war in Ukraine.

In its last meeting of the year, the cabinet also extended by six months the temporary subsidies that allow public transport prices to be offered at a discount, Sanchez said.

In addition, the ministers approved a 2.8% increase in pensions that would benefit some 12 million retirees, he added.

In a separate statement, the Economy Ministry said it was extending restrictions on foreign takeovers of Spanish companies it considers strategic until the end of 2026.

Originally introduced as a measure to protect Spanish firms during the COVID-19 pandemic, it requires an authorisation process for the acquisition by a foreign entity of major stakes in companies related to fields such as defence, healthcare or telecommunications.

These restrictions came into play when Saudi Arabia’s STC Group raised its stake in telecoms group Telefonica to 9.97%. Madrid gave the transaction the green light in November following a months-long review.

($1 = 0.9607 euros)

(Reporting by Emma Pinedo, David Latona and Jesús Aguado. Editing by Andrei Khalip and Tomasz Janowski)