Nitrogénművek wishes to inform its creditors about recent developments regarding the carbon-dioxide quota tax.

On 15 January 2024, Nitrogénművek filed a constitutional complaint with the Constitutional Court of Hungary against the carbon-dioxide quota tax and the transactional fee that were introduced by the Government in mid-summer 2023. Nitrogénművek argued that both taxes infringe on the constitutional right to property, as their rates are so high that they are effectively confiscatory, and confiscatory tax is not a permitted restriction of property rights. Additionally, Nitrogénművek contended that the Decree violates the prohibition on retroactivity. Whereas the Decree only came into effect in mid-summer 2023, the entire yearly emission served as the basis for the tax, which is a clear violation of the prohibition on retroactive legislation. This issue was exacerbated by the mere three days between the promulgation and entry into force of the Decree, which left no time to prepare for the application of the Decree’s provisions. Nitrogénművek also claimed that the Government overstepped its powers under the special legal order by enacting a Decree which could not be linked to the reasons for the adoption of the special legal order of Hungary. The establishment of such a link is a minimum constitutional requirement for Government Decrees issued under a special legal order.

On 15 October 2024, the Constitutional Court rejected Nitrogénművek’s complaint. The main reason for the rejection was that, according to the Constitution, if the Government debt exceeds half of the gross domestic product - which has been the case in Hungary for many years - the Constitutional Court has limited power to review acts on tax provisions. It can only review their conformity with the Constitution as it pertains to the most important constitutional rights of individuals (such as the rights to human life and dignity), none of which can serve as a valid basis of reference for a legal entity like Nitrogénművek. The Constitutional Court’s practice is consistent with this limitation of power and has recently extended the scope of this provision to government decrees enacted under the special legal order, arguing that these decrees are ‘quasi acts’ and therefore covered by the limitation. Based on this limitation, the Constitutional Court did not review Nitrogénművek’s arguments on their merits. This decision essentially confirms that, under the special legal order, the Hungarian Government can enact any central tax provisions, even with retroactive effect, as the Constitutional Court will have no power to review their conformity with the Constitution. The Constitutional Court’s practice is also consistent in rejecting arguments regarding overstepping the bounds of power under the special legal order, mostly for formal reasons, as it did in the case of Nitrogénművek’s complaint. Finally, the Constitutional Court rejected the review of the transactional fee on its merits, because in its view the conditions for lodging a complaint were not met.

The decision of the Constitutional Court is final, and there is no legal recourse against it. Nitrogénművek remains convinced that its arguments are valid and that the Decree introducing the carbon-dioxide quota tax and the transactional fee are unconstitutional. However, these arguments were not evaluated on their merits by the Constitutional Court. Nevertheless, Nitrogénművek is not surprised by the Constitutional Court’s decision, as it is consistent with its practice of not examining tax legislation, even if such legislation is adopted under a special legal order, in the form of a decree. Nitrogénművek is convinced that the carbon-dioxide quota tax is not only unconstitutional but also contrary to EU law. Nitrogénművek has managed to persuade the Hungarian court to refer the case to the Court of Justice of the European Union for a preliminary ruling, and the procedure is already underway. At the same time, the Commission has also taken an interest in the government decree based on the complaint filed by Nitrogénművek and other affected market players. Nitrogénművek is hopeful that the proceedings before the EU will be successful, as it firmly believes that the carbon-dioxide quota tax is incompatible with, and indeed contrary to, the aims and provisions of the EU’s emission trading system. Despite the burden of the carbon-dioxide quota tax, Nitrogénművek is making every effort to maintain its good financial standing and liquidity while continuing its production. The company remains committed to ensuring the uninterrupted supply of high-quality, environmentally friendly products to the region’s agriculture sector, avoiding any reliance on imports. Nitrogénművek’s dedication to local supply is essential to safeguarding the agricultural industry’s stability, ensuring that farmers have access to reliable resources despite the external financial pressures posed by the new tax.