Court gives ax to retro solar tax

A retroactive tax placed on solar plants was ruled unconstitutional by the Prague Municipal Court July 25, a decision that could help open the flood gates to arbitration for international investors seeking damages in the billions of crowns.

The 26 percent tax was part of an amendment to energy laws implemented this year to rein in the solar industry. Originally, the government had promised to buy a set amount of energy at a set price from solar plants for 20 years. That amount was reduced 5 percent annually based on a forecast drop in technology prices, which actually fell much quicker. The sector mushroomed as it became more lucrative, and the government struggled to pay all the subsidies.

"The relevant amendment to the Income Tax Act and the promotion of renewable sources are in conflict with the constitutional order," said court spokesman Martin Lhotáková.

The ruling, in response to a petition from an anonymous investor, comes as international investors prepare to go to court to demand refunds of solar taxes and possible additional damages based on bilateral investment and international trade treaties. October will see the end of many six-month "cooling" periods - a mandatory waiting period between the notification of arbitration proceedings and when they can begin.

The Finance Ministry has so far been notified about claims totaling around 40 billion Kč, ($2.4 billion) said ministry spokesman Ondřej Jakob.

"The Finance Ministry is intensively monitoring the situation with the decision of the Municipal Court," Jakob said, but would not comment in detail before reading the wording of the decision.

"However, we believe our legal position remains strong," he added.

The ruling will now be reviewed by the Superior Court and then the Constitutional Court, which could take months, said Radim Kotlaba, senior associate at CMS Cameron McKenna.

"I wouldn't say it's clear it will be canceled, but ... in general, it's good for solar investors, because another way to the Constitutional Court [in addition to a constitutional complaint signed by 17 senators] is now in place," he said.

If the Constitutional Court finds the tax was illegal based on either the senators' complaint or the latest petition, the tax would be abolished and international investors would be better able to demand a return of all the money they paid for the solar tax.

"It will be a very useful argument for the international investors," Kotlaba said.

Domestic investors, however, will have limited, if any, options for suing the government to get back money already contributed for the tax, he said.

Cat Contiguglia can be reached at
ccontiguglia@praguepost.com