The temporary levy on the energy sector, created by Law 38/2022 of 27 December, is completing its third year of application following the extension included in Law 7/2024. This note analyses the technical design of the levy, the consequences of the extension, relevant tax litigation issues, and prospects for 2025 and 2026.
Technical Design of the Levy: Law 38/2022
Legal Nature
The energy sector levy was not created as an ordinary tax but as a “non-tax public property contribution” (prestación patrimonial de carácter público no tributario), a distinction with legal significance. By not being structured as a tax in the strict sense, the levy avoids the reinforced legislative procedure of Articles 31 and 133 of the Spanish Constitution for the creation of new taxes. This classification has been one of the principal arguments in the constitutional challenges brought by affected companies.
Taxpayers and Application Threshold
The levy affects legal entities and entities without legal personality that:
- Have their tax domicile or effective management seat in Spain.
- Carry out activities generating at least 75% of their net income in energy sectors (production and distribution of electricity, generation from renewable sources, extraction, production and distribution of natural gas, regasification, storage, transport and distribution of gas, production and distribution of petroleum derivatives).
- Had net energy sector turnover in Spain equal to or exceeding €1 billion in 2019 (the base year fixed in the legislation).
The €1 billion threshold excludes virtually all medium and small energy sector companies, concentrating the levy’s application on the large groups (Repsol, Iberdrola, Endesa, Naturgy, Cepsa, Enagás, Red Eléctrica/REE and peers).
Tax Base and Rate
The levy base is the net energy sector turnover derived from energy activities carried out in Spain during the year preceding the one in which the levy accrues. This means:
- For the levy accruing in 2023 (first year): the base is energy income for 2022.
- For the levy accruing in 2024 (second year): the base is income for 2023.
- For the levy accruing in 2025 (third year, following extension): the base is income for 2024.
The rate is 1.2% of the tax base, with no possibility of reduction, deduction or relief.
Non-Deductibility for Corporation Tax Purposes
Article 1 of Law 38/2022 expressly provides that “the levy shall not be considered a fiscally deductible expense for the purposes of determining the Corporation Tax base.” This provision means that the energy company pays the levy from funds that have already been subject to Corporation Tax at the general rate of 25%, so the actual fiscal cost of the levy exceeds the nominal 1.2%.
The effective net fiscal cost, taking into account non-deductibility, can be calculated as: nominal levy rate / (1 - CIT rate) = 1.2% / 0.75 = 1.6% equivalent. This is the real cost rate on energy turnover, one third higher than the nominal rate.
Self-Assessment Deadline
Modelo 797 is submitted in the first twenty calendar days of September of the year following the accrual date. There are no advance payments or instalment payments. The levy is paid in a single lump sum in September.
Extension for 2024: Law 7/2024
Law 7/2024 includes the extension of the levy for the 2024 tax year (accruing on 31 December 2024) under the same terms and conditions as Law 38/2022. The tax base for the extended levy is the net energy sector turnover in Spain during 2023.
The extension was passed without specific debate on its impact or assessment of the levy’s effects on energy investment or tariffs — something the sector’s employers’ organisations have criticised.
Legal Challenges and Tax Litigation
Several energy companies have challenged the levy through different legal routes:
Constitutional Challenge Before the Constitutional Court
Certain parliamentary groups filed constitutional challenges against Law 38/2022, arguing violation of the principle of economic capacity (Article 31.1 of the Spanish Constitution), given that the levy is calculated on gross revenues without deduction of costs, and violation of the principle of legal certainty (Article 9.3), due to the non-deductibility of the levy for CIT purposes.
The Constitutional Court has not yet resolved these challenges; until resolved, the levy remains in force and enforceable.
Administrative and Judicial Review
Companies that self-assessed the levy may file an economic-administrative review before the Central Economic-Administrative Court (TEAC) within one month of the self-assessment date, with suspension of enforcement upon provision of security. Following that stage, judicial review before the National Court (Audiencia Nacional) is available, and ultimately before the Supreme Court (Tribunal Supremo).
The challenge strategy chosen by each company depends on whether it prefers to accelerate resolution (ordinary route) or await the Constitutional Court’s ruling, which would have general and retroactive effects for all taxpayers.
Prospects for Permanence of the Levy
The government has publicly maintained its intention to convert the temporary levy into a permanent surcharge on the Corporation Tax for large energy companies. However, parliamentary passage in 2025 is uncertain, and there is pressure from the sector that, if the levy is made permanent, it should be redesigned on the CIT base (net profit) rather than on turnover, which would make the charge more consistent with the ability-to-pay principle.
In the most probable scenario for 2026, affected companies should plan on the basis that the levy — in its current form or as a permanent surcharge — will continue to be enforceable, and should provision its amount in their 2025 annual accounts.
At BMC, our specialist tax team advises energy sector companies and large corporate groups on the levy’s impact, available challenge strategies and year-end planning. Learn about our tax advisory services.
Common Mistakes in Managing the Extraordinary Energy Levy
Affected companies and their advisers have made predictable errors in the two levy years since Law 38/2022 entered into force. These mistakes generate material financial exposure and risk adverse outcomes in any challenge proceedings.
Mistake 1: Treating the levy as deductible for Corporation Tax purposes. Law 38/2022 expressly provides that the extraordinary levy is not deductible for CIT purposes. This non-deductibility applies both to the levy itself and to any provisions made for its anticipated payment. Companies that have incorrectly deducted levy payments from their CIT base — or included them as a deductible operating cost in their analytical accounts for CIT provisioning — will generate a deficit in their CIT payments and face supplementary assessments with late-payment interest when the AEAT cross-references Modelo 797 filings against the CIT return (Modelo 200).
Mistake 2: Incorrectly calculating “net energy sector turnover” by offsetting intra-group transactions. The levy base — net energy sector turnover above €1 billion — is calculated at the individual legal entity level for entities filing standalone, or at the tax group level for consolidated tax groups. Intra-group eliminations that are appropriate for GAAP consolidated accounts do not reduce the levy base in the same way. Companies operating through multiple energy subsidiaries should verify whether each entity independently crosses the €1 billion threshold — the levy is assessed per entity, not per economic group — to avoid under-provisioning at subsidiary level while assuming group-level netting applies.
Mistake 3: Missing the Modelo 797 September deadline. Unlike CIT advance payments which follow a quarterly cycle, the extraordinary energy levy has a single annual self-assessment window in the first twenty calendar days of September of the year following the accrual year. There are no advance payments. A company that misses this narrow window faces an immediate late-payment surcharge of 1% per month for the first twelve months (under Article 27 of the General Tax Law, Ley 58/2003), escalating to 15% or 20% surcharges plus interest for submissions more than twelve months late. Given the substantial levy amounts for the largest affected entities, a missed deadline generates a six- or seven-figure surcharge with no discretionary waiver available.
