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1 Cristina Enache, What European Countries Are Doing about Oil and Gas Windfall Profits Taxes 1 (2024)

handle is hein.taxfoundation/weurcount0001 and id is 1 raw text is: *TAX FOUNDATION | EUROPE What European Countries Are Doing about Oil and Gas Windfall Profits Taxes Cristina Enache Economist September 2024 Key Findings • In 2022, the Council of the European Union temporarily imposed an EU-wide windfall profits tax, or solidarity contribution, on fossil fuel companies. • The tax applied to taxable profits above a 20 percent increase of the average yearly taxable profits since 2018. Member States could instead implement equivalent national measures provided the measures were compatible with the objectives of the regulation and generated similar proceeds. • Between 2022 and 2023,15 of the 27 Member States applied the tax; 8 adopted an equivalent national measure, 3 reported that they did not have in-scope companies, and Cyprus never adopted the regulation. • The tax was intended to be temporary; however, Spain and Hungary have extended it until 2024 and the Czech Republic has extended it until 2025. In addition, Spain, Italy, and the Czech Republic have extended the scope of the tax to the banking sector. • Outside of the EU, the United Kingdom also implemented a windfall profits tax on fossil fuel com- panies in 2022 and has since extended its application to 2030. • Defining supernormal profits is challenging, generates uncertainty for investors, and requires a constant adjustment of the tax base. The complexity and retroactivity of these taxes have also led to legal disputes at the EU and Member State levels. • Windfall profits taxes can push investment and production to foreign countries with more stable and predictable tax environments. This reduction of domestic production leads to a loss of jobs and economic activity in the home country. • Major oil and gas companies also have renewable energy branches spanning from offshore and onshore wind production to green hydrogen divisions that are affected by the windfall profits tax. • In particular, the Spanish and British taxes are threatening domestic renewable energy invest- ments. • Of the roughly €27 trillion required for the EU to reach net zero by 2050, estimates suggest a major- ity will need to come from the private sector. However, windfall taxes reduce the amount of avail- able capital for energy companies to invest in capital-intensive projects. • Policymakers should implement long-term, pro-growth tax reforms that incentivize private invest- ment and energy diversification. The mission of Tax Foundation Europe is to improve lives through tax policies that lead to greater economic growth and opportunity. TAX FOUNDATION EUROPE, RUE D'ARLON 40, 1000 BRUXELLES, BELGIUM taxfoundation.org/eu