While the European Commission announced its intention to tackle the extraordinarily high profits of fossil fuel companies on Wednesday 7 September (see EUROPE 13016/1), some countries have already introduced windfall profit taxes. EUROPE provides a summary.
Oxfam International, which brings together several independent non-governmental organisations, has taken stock of the situation. Italy, Spain, Greece, Romania and Hungary have already put measures in place. These measures are applied by comparing current profits with pre-crisis profits in 2019.
In Italy, for example, “if the increase is more than 10%, they apply this tax at 25%”, explains Chiara Putaturo, an EU tax and inequality policy advisor at Oxfam, interviewed by EUROPE on Tuesday 6 September.
While in Italy this tax concerns companies in the energy sector, which includes gas, electricity and oil, Spain has decided to tax banks, airlines and telecommunications as well.
The rates are also different. Greece has announced that it will tax the windfall profits of energy companies earned between October 2021 and March 2022.
According to Oxfam, Belgium, the Netherlands and, very recently, Germany have announced that they will follow the lead of the South. In particular, they plan to use the revenues to support consumers who are most affected by the price increase.
Social justice
For Oxfam and some policy makers, this tax is a matter of social justice. “We are seeing a widening of inequalities on one side, (and on the other side) we are seeing companies that do not use these profits for investments, but they use it to pay dividends. It is fair, because it is a redistribution of resources”, says Ms Putaturo.
“These profits are not achieved through comparative advantage or sound economic strategy, but are simply the result of external conditions that companies use”, she explains.
“They benefited from the increase of money injected into the economy during the Covid-19 pandemic, which, while helpful on one side, profited a lot to the companies. And it brought a lot of speculation”, Ms Putaturo added. She therefore considers that this tax should also cover companies that generated windfall profits during the pandemic, particularly those in the digital and pharmaceutical sectors.
Oxfam says it wants to see a regulatory framework put in place so that this tax is automatic and can be activated when needed. A measure also supported by Aurore Lalucq MEP (S&D, French), contacted by EUROPE on Wednesday 7 September: “We would save a lot of time, it would be efficient and fast”, she commented.
With such a measure, “we would not need lengthy political negotiations or to create a specific bureaucracy each time. A framework would be there if needed. As a reminder, very large companies benefit from public aid, but contribute little. They pay only 9% tax in Europe, compared to 20% for SMEs. This is a democratic problem”, added Ms Lalucq.
The International Monetary Fund (IMF) also advocates a similar measure. Policymakers should introduce a permanent tax on excessive profits made by fossil fuel companies rather than temporary taxes, according to a note published on Tuesday 30 August. “Excess profits can be taxed by tax instruments targeted at economic rents that avoid discouraging investment and limit any impact on further price increases.”, it says.
The IMF also suggests introducing a permanent windfall tax on fossil fuel extraction and calls for caution on “temporary and possibly poorly designed windfall profit taxes”.
Some countries, such as France, are pushing for a solution at European level to put in place a system.
Businesses oppose it
However, this measure does not meet with unanimous approval, particularly from the conservative parties and the business community. This issue has divided the European Parliament (see EUROPE 12988/5).
The European employers' association BusinessEurope wrote to the ambassadors to the EU (Coreper) on Wednesday 31 August to express its concerns. Asserting that “European companies are focussing on finding solutions to deal with the immediate consequences of the war in Ukraine and remaining supply disruptions linked to the Covid-19 crisis” and “governments and authorities, at EU and national level must do their utmost to avoid imposing new burden on companies to preserve EU economic leverage”, it says in the letter, which was obtained by EUROPE.
According to BusinessEurope, which cites the European Central Bank (ECB), a specific tax on banks can affect financial stability and the ability to lend to companies.
The employers’ association also fears that these exceptional taxes on the profits of energy companies will affect the ability of some electricity producers to make the necessary investments and risk distorting the market in the long term.
It also raises the difficulty of identifying ‘excess profits’ on high energy prices and urges the European Commission to define a clear methodology at EU level. (Original version in French by Anne Damiani)