MADRID (AP) — Renewable energy investors who lost subsidies promised by Spain are heading to a London court to try to claw back $125 million from the government — a decadelong dispute with ramifications for clean energy financing across the European Union.

The outcome will be closely watched by investors after the U.S. passed a new law offering incentives for homegrown green technology. Experts say the Inflation Reduction Act is already drawing clean energy investment away from EU countries like Spain, leaving the 27-nation bloc much less competitive globally.

The European Commission, the EU’s executive arm, has proposed its own rules on allowing state aid and incentives for green investment. But those changes would not affect court cases already underway.

The lawsuit in London’s Commercial Court this week involves investors from the Netherlands and Luxembourg who poured millions into a solar plant in southern Spain in 2011. The Spanish government offered subsidies to encourage growth in renewable energy production, then controversially slashed the payments without notice as it cut costs after the 2008 financial crisis.

Spain has been sued internationally more than 50 times over the retroactive changes. It has not paid out despite losing more than 20 cases so far, according to U.N. data on international investment disputes. The EU backs Spain’s position.

“Those renewable investors — multibillion-dollar companies — are very concerned about the attitude of Spain and Europe looking forward,” said Nick Cherryman, one of the lawyers leading the case against Spain. “Why should they take risks investing in Europe given the track record?”

Spain now ranks alongside Venezuela and Russia as countries with the most unpaid debts over commercial treaty violations, according to a recent ranking compiled by Nikos Lavranos, a Netherlands-based expert in investment arbitration and EU law.

Most of the cases allege that Spain broke agreements it agreed to honor under the international Energy Charter Treaty, a legally binding agreement between 50 countries to protect companies from unfair government interference in the energy sector.

Environmental campaigners have criticised the treaty for protecting fossil fuel investment because financiers can also sue over policy changes aimed at scaling back polluting projects. However, for Spain, almost all cases relate to renewable energy.

“If you take the bigger picture, the EU is shooting itself in the foot by supporting Spain in this,” Lavranos said. “You cannot trust that they can follow through with their agreements, so I think you do shake investors’ confidence.”

He also questioned how leaving investors in the lurch over initiatives to ramp up renewable energy production aligned with recent EU initiatives like the Green New Deal, a goal for carbon neutrality by 2050 and relaxation of subsidy rules.

“It’s very contradictory,” Lavranos said.

In 2013, the investors in Spain brought a case before the World Bank-backed International Centre for Settlement of Investment Disputes, an arbitration body between governments and investors.

Spain in 2018 was ordered to compensate investors over its subsidy changes. Despite being told to pay out more than $1 billion by the international body, Spain has refused, citing EU rules.

Spain’s Ecological Transition Ministry said the payments “may be contrary to EU law and constitute illegal state aid.” When the government is told to make a payout, it says it notifies Brussels but that “Spain cannot pay before the commission’s decision, so it is faithfully complying with its legal obligations.”

The European Commission said the Energy Charter Treaty does not apply in disputes between member states like the Netherlands, Luxembourg and Spain, arguing EU law takes precedence. The commission says the decision to compensate investors over lost Spanish subsidies is still being studied and “the preliminary view is that the arbitration award would constitute state aid.”

Cherryman, the investors’ lawyer, said the EU thinks it “should be superior to international treaty law.” After waiting for payment for a decade and given the EU position, his team is trying to seize part of a $1 billion settlement awarded to Spain over a 2002 oil spill.

Starting Wednesday, the London court will hear Spain’s arguments that the investors should not be allowed to seize those assets in lieu of compensation they have yet to be paid.

José Ángel Rueda, a Spanish international arbitration lawyer who has represented several renewable energy investors against Spain, said the country’s reputation is at stake. Other EU members like Germany and Hungary have paid out after international disputes, opting to maintain a positive image, he said.

“Spain is not like Russia or Venezuela. It was expected to be a serious country. But the awards remain unpaid,” Rueda said. “Investors can see that Spain might not be a reliable state in terms of the rule of law.”

Following years of legal wrangling, the EU is now considering a coordinated withdrawal from the energy treaty, though that would not affect pending disputes.

“It is not possible to modernize the treaty to make it compatible with the objectives of the Paris agreement and the European Green Deal,” Spain’s Ecological Transition Ministry said.

The European Commission agreed, saying a withdrawal was “the most pragmatic way forward.”

That might simply nudge investors to look across the Atlantic, Cherryman said.

“America has been nimble, and it introduced very favorable legislation to encourage renewable investment,” he said. “They will respect my investment. Or I can take risk and go into Europe, go into Spain.”

The risk was the loss of more money for renewables, which are “a win for everybody,” Cherryman said. “We all want to see renewables being invested in and we all want a greener environment that is a safer future for our children.”

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Goldman Sachs Group Inc. says it aims to provide “best-in-class investment advice to clients, consistent with both the letter and the spirit of all applicable tax laws and regulations.”

So, the bank was quick to say that it would change its trading practices after a media organization claimed it had helped former Microsoft Corp. boss Steve Ballmer subvert at least the spirit of U.S. laws against so-called “wash sales.”

Investors will be familiar with the idea of tax-loss harvesting: selling an underperforming stock to crystallize a loss that can be offset against capital gains elsewhere, to lower your overall tax bill. It’s common practice to prune a few losers before the end of the tax year.

But you can’t simply buy the same stock back and still claim the deduction. It really has to be kicked out of your portfolio.

However, in February, Pro Publica Inc. reported that Mr. Ballmer, through his trading account at Goldman Sachs, had sold shares in the dual-listed natural resources giants Shell PLC RYDAF and BHP Group Ltd. BHPLF, then replaced them on the same day with identical amounts of the other class of the companies’ shares, and claimed a chunky deduction.

Under U.S. law, a wash sale is defined as one in which the investor makes a “substantially identical” purchase within 30 days. Goldman Sachs told the Financial Times it would halt repurchase transactions involving dual-class shares and had alerted clients to the mistake. A spokesperson says the affected trades were very small in number. Mr. Ballmer told Pro Publica that he would amend his tax filings.

But the biggest impact from Pro Publica’s investigation may not be the tweaks to Goldman Sachs clients’ tax filings. It may instead be the spotlight it shines on the explosive growth of tax-loss harvesting strategies. The use of dual-class share replacements was a tiny part of what Goldman’s traders achieved for Mr. Ballmer, who netted an extraordinary US$579-million in tax-loss harvesting over five years, according to Pro Publica’s calculations.

And this is not a billionaires’ only game. Far from it. Tax-loss harvesting has been mechanized thanks to the collapse in trading costs and the rise of so-called direct indexing.

Investors can acquire algorithmically-controlled portfolios of hundreds of stocks that are built to track a broad stock market index but are also programmed to sell lossmaking shares throughout the year to crystallize tax losses and replace them with alternative investments to keep the portfolio on track.

A pioneer of the strategy, Parametric Portfolio Associates LLC, was purchased by Morgan Stanley after a bidding war in 2020. Rival JPMorgan Chase & Co. eventually bought another platform called 55ip, and the two wealth managers have put their tax-loss harvesting products at the centre of a fierce price war. Market research sponsored by Parametric suggests direct indexing could account for US$800-billion in assets by 2026.

Academic studies show the strategy can add 1 to 2 per cent a year in after-tax returns to a diversified equity portfolio, and can even be used to give a boost to fixed-income portfolios.

Marketing materials from the investment manager Northern Trust Corp. (NT) demonstrate how sophisticated the products have become. It says the tax losses can be dialled up or down depending on how much deviation from the underlying index an investor is willing to risk. NT did not respond to a request for comment.

There’s no suggestion any of these platforms engage in illegal wash sales by using substantially identical replacements. That’s the point. They don’t have to. But algorithms can be programmed to go more or less close to the line.

So, it wouldn’t be surprising if authorities were tempted to move the line and toughen the rules. The word “substantially” could be made to do a lot of work.

The Internal Revenue Service (IRS) hasn’t provided much in the way of guidance about what “substantially identical” means in modern markets, with the result that different advisors take more or less conservative positions.

In a piece on the “silver lining” of tax-loss harvesting opportunities in the down market of 2022, Morningstar Inc. warned investors against replacing an exchange-traded fund (ETF) with another that tracked the same index, even if it was run by a different asset manager.

“It’s probably safest to replace fund holdings with a vehicle that tracks a different index,” Morningstar strategist Amy Arnott wrote. “For example, an investor selling Vanguard 500 Index Fund, which tracks the S&P 500, could replace it with Vanguard Total Stock Market Index Fund, which tracks the broader CRSP Total Market Index.”

Tax authorities could also squeeze investors in a variety of other ways that raise the costs or risks of the strategy – by making investment advisors liable for the violations of their clients, or just by subjecting more users of tax-loss harvesting strategies to gruelling audits. The IRS has just had US$80-billion added to its budget and is itching to spend it.

The nuclear option would be for the U.S. Congress to step in. David Schizer, tax professor at Columbia Law School, told Pro Publica that the law should be rewritten to change “substantially identical” to “substantially similar.”

Individual investors obviously don’t want to lose the better after-tax returns they can enjoy thanks to the mechanization of tax-loss harvesting. But if it substantially erodes the tax base, politicians will only be encouraged to find new taxes elsewhere to crimp investors’ returns by other means – like the new U.S. tax on share buybacks, for example. That really would be a wash.

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B2B marketing is at an inflection point. Recent transformation in the space has been driven predominantly by software tools and technology platforms. Despite a US market size of over $850 billion in 2022, the marketing services sector has seen limited disruption. With Recognize’s support, 2X is redefining the B2B marketing services landscape.

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B2B marketing is critical to driving business growth in today’s market conditions. Yet the B2B industry has suffered severely from a technology skills shortage. 2X has embraced the future of work to thrive in today’s “do-more-with-less” environment. These transformative capabilities have fueled 2X’s organic growth and 95% CAGR since its 2017 founding.

“The 2X team has cracked the code in high quality, offshore B2B marketing and is solving revenue growth problems for clients when they need it most,” said Recognize co-founder and managing partner, Charles Phillips. “2X has grown impressively since launching and has displayed multiple horizons of exciting growth potential. Our partnership with Domenic and his team will help cement 2X as the preeminent leader of this emerging market.”

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