Ørsted has received a favourable final opinion in its long-running dispute over whether profits connected with two major British offshore wind farms should be taxed primarily in Denmark or the UK.
An advisory commission established under the EU Arbitration Convention concluded that Walney Extension and Hornsea 1 have a genuine legal and economic purpose and should primarily be taxed in the country where the projects are located.
That places the principal taxing right in the UK as the wind farms generate electricity and revenue.
The decision supports the legal principles Ørsted has applied to the projects and provides a basis for discussions over other offshore developments where the Danish Tax Agency has taken similar positions.
Ørsted said it was “satisfied with the outcome”, which it considers consistent with its interpretation of international tax rules and their application to offshore wind.
The case dates to 2015, when the company asked the Danish Tax Agency and HM Revenue & Customs to clarify taxation rights between the two countries so that the projects would not face double taxation.
The two authorities failed to reach an agreement and the dispute was referred to the advisory commission in 2023.
The opinion does not eliminate every financial consequence for Ørsted. It will produce a minor upward adjustment to the group’s overall tax position in Denmark together with related interest.
The company said that adjustment is already covered by provisions for uncertain tax positions and should largely be offset over time by lower tax charges in the UK.
The more significant issue is how the principles are applied to other projects. Ørsted intends to enter discussions with the Danish Tax Agency over developments where similar administrative decisions or draft assessments have been made and expects those cases to follow the same approach.
It will also discuss implementation of the opinion with HMRC.
Cross-border infrastructure creates unusually complex tax questions because economic activity can be distributed across several jurisdictions even when the physical asset sits in one country.
An offshore wind development can involve project origination, engineering, financing, procurement, management, intellectual property, construction expertise, and corporate entities located in different places. Once operational, however, the physical wind farm produces electricity and revenue within a particular market.
Transfer-pricing rules determine how value generated through those different functions is allocated for tax purposes. Where national authorities disagree, a multinational group can face overlapping claims over the same economic activity.
The resulting uncertainty is particularly difficult for infrastructure investors because projects are financed over long periods and require substantial expenditure before they generate revenue.
Tax assumptions feed directly into projected returns, financing structures, partnership arrangements, disposal values, and the allocation of development activity between corporate entities. A dispute that remains unresolved for a decade can therefore affect decisions long after the underlying asset has become operational.
The final opinion provides greater certainty for Walney Extension and Hornsea 1, but its commercial value may be broader if it establishes a consistent basis for settling similar assessments across Ørsted’s UK portfolio.
The company remains one of the largest operators in offshore wind. It reports 11GW of installed offshore capacity and another 7.2GW under construction, with total installed renewable capacity of more than 19GW across offshore and onshore wind, solar, storage, bioenergy, and related activities.
That scale increases the potential financial effect of disagreements over where development and operational value should be taxed. The sums attached to individual projects can become significant when revenue is generated over several decades.
The decision also has relevance beyond Ørsted. Offshore wind is an international industry in which developers, contractors, financiers, equipment manufacturers, and project companies frequently operate across borders.
Predictable tax treatment is one element of the investment environment alongside electricity prices, planning, seabed rights, grid access, financing costs, and regulation. Prolonged uncertainty can complicate transactions and increase the amount of risk investors have to price into a project.
The advisory commission’s opinion does not automatically settle every related case and further discussions with the Danish and UK tax authorities are required.
It does, however, provide a clearer framework for a dispute that began in 2015 and gives Ørsted a basis for arguing that comparable projects should be resolved using the same principles rather than through another extended arbitration process.
You must be logged in to post a comment.