A ruling by the Italian constitutional court declaring that the country’s planned ‘Robin Hood tax’ is unconstitutional is positive for the credit profile of Italian utilities and energy companies, says Fitch Ratings.
However, the credit rating agency (CRA) adds that the tax’s cancellation is unlikely to result in rating upgrades because it has a relatively limited impact on companies’ overall cash flows.
The so-called ‘Robin Hood tax’ is a 6.5% surtax on the income of Italian energy companies with annual revenue exceeding €3m (US$3.4m/£2.2m) and taxable income above €0.3m. The court’s decision means companies will no longer have to pay the tax, but they will not be entitled to claim back what they have already paid. The decision affects Enel, Acea, Terna, Linea, CVA and Andromeda Finance among Fitch-rated utility companies and renewable energy projects.
Fitch adds that Italy’s government was reportedly set to generate around €700m from the tax in 2015 and it is unclear how it might make up for the absence of this revenue. However, the CRA does not expect it to attempt to recoup it solely from utilities or the wider energy sector, at least in the short term, particularly as the sector is no longer making the large profits that were the tax’s focus.
Fitch also does not expect the court’s decision to influence the Italian energy regulator’s review of tariffs for the coming regulatory periods. It adds that the regulator is independent and in any case a harsher tariff regime would not help the government recoup the lost tax.
Challenges to the Italian government’s decision last year to retroactively cut feed-in tariffs payable to solar photovoltaic (PV) plants are also likely eventually to be heard by the Constitutional Court. Fitch downgraded Andromeda Finance’s notes by three notches after this decision, so its reversal could be strongly credit positive for affected issuers. The latest ruling does not affect the chances of the court ruling against the government in the feed-in tariff case.
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