Slovak Emission Allowances Tax Breaches EU Law

27 April 2018
Author: JHA

The CJEU has held in C-302/17 PPC Power that the Slovak tax on sold or unused greenhouse gas emission allowances is not compatible with EU law as it is contrary to the principle of the free allocation of allowances.

During 2011-2012 Slovakia levied a tax of 80% on allowances that were sold or were not used by entities participating in the EU Emission Trading System (‘EU ETS’). The allowances had been allocated to those entities free of charge in accordance with Directive 2003/87/EC (the ‘EU ETS Directive’).

The CJEU held that the free allocation of allowances was intended to prevent EU ETS regulated entities from losing competitiveness as a result of the introduction of the EU ETS. The economic value of allowances underpins the EU ETS, as selling unused allowances encourages undertakings to invest in emission reducing measures. However, depriving these undertakings of 80% of the value of such allowances removes most of the economic incentive to invest in measures to reduce emissions. In conclusion, the tax has the effect of neutralising the free allocation of allowances and is therefore incompatible with the EU ETS Directive.

This article appears in the JHA April 2018 Tax Newsletter, which also features:


  1. German Ministry of Finance Guidance on Anti-Treaty Shopping Rule
  2. HMRC May Not Open Enquiry into Voluntary Self-Assessment Return
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