Legal Alert – Upcoming Tax Rate Increases for Wind Farms
As part of the Government’s efforts to increase the tax revenue of municipalities, the Parliament has approved two amendments to the Finnish Real Estate Tax Act (In Finnish: Kiinteistöverolaki), which will increase the real estate tax levied on wind power plants and raise the general real estate tax rate. Together, these two amendments will increase the tax burden of individual wind turbine generators (WTGs) and especially wind farms, i.e. multiple WTGs that are connected to the grid or distribution network through the same connection point.
The Finnish real estate tax for wind farms is based on a system where individual wind turbine generators with a capacity below 10 MVA are taxed according to the general real estate tax rate and WTGs whose capacity exceed 10 MVA are subject to a higher “power plant real estate tax” rate. The proposed changes will both increase the general real estate tax rate and broaden the scope of application of the power plant real estate tax rate.
Changes to the calculation of capacity limits
On 25 October 2017, the Parliament approved an amendment to the Real Estate Tax Act that will affect the basis according to which the applicable tax rate is calculated for each individual wind farm. Under current legislation, the 10 MVA capacity, according to which the applicable tax rate is determined, is calculated based on the capacity of a single WTG. The amendment, however, introduces a new method of calculating the MVA capacity, pursuant to which the 10 MVA capacity limit will be calculated by combining the MVA capacity of the entire wind farm.
Under the current system, the higher power plant real estate tax rate has not been applied in practice as all WTGs constructed in Finland have had a capacity of less than 10 MVA. The new method, however, determines the applicable tax rate based on the combined capacity of multiple WTGs instead of individual WTGs, and it will thereby allow municipalities to tax larger wind farms at the power plant real estate tax rate instead of the general real estate tax rate. The new maximum power plant real estate tax rate will be 3.10%.
General real estate tax rate to increase
The Parliament also approved another amendment to the Real Estate Tax Act on 25 October 2017 that proposes an increase to the general real estate tax rate. The maximum rate of the general real estate tax will increase from the current maximum of 1.8% to 2.00%. The current minimum rate of 0.93% will remain unchanged. Consequently, the new general real estate tax rate will range from 0.93% to 2.00% depending on the municipality.
These amendments will increase tax costs especially for wind farms consisting of multiple WTGs and therefore lead to a decrease in their profit revenues.
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