The “excess profit tax” was introduced in the EU by emergency law. It is now, of all people, an American multinational that is reminding the EU that Brussels actually has no say in direct taxes.
Exxon Mobil has invested 3 billion dollars in European refineries over ten years – the one in the port of Rotterdam is pictured here.
Emergency law has not only determined the Corona crisis, emergency law remains tempting even in the energy crisis, as a controversial EU measure suggests. It’s about the excess profit tax for oil companies, which all member states have to introduce at the end of the year. However, the EU Commission did not reckon with the American oil company Exxon Mobil: The multinational took legal action against the tax in the EU court this week.
Should companies that made a lot of money thanks to high oil and gas prices in 2022 be asked to pay more than the ordinary profit tax? On the other hand, there is something arbitrary about the whole thing when tax laws are changed ad hoc and for specific industries. “Excess profits” and huge losses are also closely related in the case of Exxon: in 2020 the company had reported a loss of 22 billion dollars, for 2022 a record profit of 58 billion is expected.
Brussels does not like the requirement for unanimity
Exxon says it has invested $3 billion in European refineries over the past decade. The implicit warning is probably: If the excess profit tax is introduced, which could tax the company with 2 billion dollars, such investments will be reconsidered in the future.
But the excess profit tax, which accounts for at least a third of profits that are 20 percent above the average for the last four years, also addresses a fundamental question: what is Brussels responsible for and what is left to the member states? When it comes to direct taxes, the EU really has no say; they are within the competence of the federal states. If Brussels wants to change something here, it needs the consent of all EU members. It is an open secret that the Commission would rather have this unanimity gone today rather than tomorrow so that it can “coordinate” and “harmonize” more.
In the case of the excess profit tax, the EU Commission used a trick to circumvent this requirement: In Article 122 of the Treaty on the Functioning of the EU states that the Council of Ministers can, at the suggestion of the Commission, decide on measures that deviate from other procedures if there are serious difficulties in the energy supply. In addition, the October ordinance never explicitly mentions a tax, but always talks about a “solidarity contribution” that is required of companies like Exxon.
One can justifiably doubt that such an excess profit tax will improve the supply situation in the Member States, as the crisis article actually requires. If you deter investors with ad hoc rules for certain sectors, the measure would be counterproductive. In addition, each country is free to introduce such a tax or not. Various countries have done so.
Crisis article as an all-purpose weapon
Exxon hits a sore spot with its lawsuit. By invoking the crisis article, the Commission and the Member States have also bypassed the European Parliament and thus weakened the separation of powers.
Of course, the EU regulation does not lack the reference that the “solidarity contribution” is an exceptional and strictly limited measure. But that was already the case when the EU was authorized to take on joint debt for the first time during the pandemic in order to support a crisis fund. Since then, there have been repeated calls for the EU to borrow money – be it for industrial policy projects or for help in the energy crisis. Once the genie is out of the bottle, it’s almost impossible to get it back.
Exxon certainly won’t gain any sympathy points with its lawsuit, but the Americans are actually doing the EU a favor: It’s good if a court reviews how extensively the crisis article can be interpreted.