ŠKO-ENERGO, s.r.o. v. Czech Appellate Financial Directorate

Summary:

ŠKO-ENERGO, s.r.o. acquired free greenhouse gas (“GHG”) emission allowances pursuant to Article 10 of Directive 2003/87 (“Article 10”), which provided that EU Member states must allocate at least 90% of allowances free of charge from 2008 through 2012. The Czech Republic Tax Office levied a 32% gift tax on the allowances pursuant to Czech Law No. 357/1992, which had been amended in 2010 to impose gift taxes on free GHG emissions allowances. A court of appeal in the Czech Republic requested a preliminary ruling from the European Court of Justice on the question of whether Article 10 precludes application of the Czech gift tax to emissions allowances obtained free of charge. The Court concluded that the gift tax was inconsistent with Article 10, because it undermined the directive’s objective to temporarily reduce the economic impact of the EU GHG emission allowances market. The Court directed to the referring court the question of whether the gift tax “respect[s] the 10% ceiling on the allocation of emissions allowances.”

At Issue: Challenged imposition of a gift tax to GHG emissions allowances granted free of charge under EU law