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Changes in Taxation of Renewable Energy Projects

Changes in Taxation of Renewable Energy Projects

08.04.2022

Reform of the Finnish Act on Real Estate Taxation

The Ministry of Finance has submitted a draft of a government proposal for reform of real estate taxation legislation concerning the valuation methodology of renewable energy projects. The reform applies to all buildings and structures subject to real estate tax, as well as land, and aims to replace obsolete valuation criteria for real estate taxation to better reflect today’s cost and price levels and regional price differences.

The tax value of wind farms and solar power plants would continue to be based on the actual construction costs of the power plant in question. However, according to the proposal, the basic value of these power plants would be only 50% of the construction costs instead of the current 75%. On the other hand, a property tax of up to 4.65 percent could be levied in the future instead of the current 3.1 percent.

To date, current tax legislation has resulted in significantly higher property taxation for offshore wind farms than for onshore wind farms due to higher construction costs and thus higher tax values, which has reduced interest in offshore wind construction and, consequently, slowed the pace of achieving environmental and energy policy objectives.

However, the draft government proposal submitted by the Ministry of Finance addresses this issue, as the draft would consider only 25% of construction costs to be the tax base for offshore power plants instead of 50% for other power plants. The precondition is that the construction of the power plant has started during2023–2027.

The amendments are expected to enter into force on November 1st, 2022, so that the amended legislation would be first applied to the calculation of real estate taxation for financial year 2024. However, in relation to offshore wind farms, the reduction in property tax would already apply in 2023 taxation.

HPP will follow the progress of the preparation and will be happy to answer customer questions about the impact of the new legislation.

New instructions on the taxation of solar power plants as well as wind farms

For the first time, the new instructions, in addition to wind power farms, also deal with the taxation of solar power plants.

According to the new instructions, property tax must be paid on the foundations and support structures of the solar power plant but not the panels, motors and movable structures which are exempt from property tax. How the support structures of the solar power plant are anchored to the ground is not decisive, but whether the solar power plant serves the use of the property on a permanent basis will decide whether a piece of equipment is taxable or not. According to the instructions, solar panels installed on the roof or wall of a building are part of the building and are not taken into account separately when calculating the tax value of the building.

As also set out in the new instructions of the FTA, the taxable value of wind power and solar power plants must also consider the operating and any shared costs of the construction site related to construction costs, the construction costs and interest during construction and the cost of insurance during construction.

It is favourable that the FTA has now issued instructions on the taxation of solar power plants although, there is a risk that some of the statements will increase the tax burden on power plants.

For further information or an assessment of the taxable value of a renewable energy project under development, please contact HPP’s tax team, which has significant experience of the taxation issues arising from the planning, development, construction and operation of renewable energy projects.

Marko Koski
Senior Advisor

+358 (0)44 758 2475
marko.koski@hpp.fi