Exxon Mobil sues EU over windfall tax as different paths taken across Atlantic

US energy giant ExxonMobil is suing the European Union (EU) in a bid to stop its new windfall tax on oil firms

Houston, U.S. | Xinhua | Exxon Mobil has become the first U.S. major energy firm to sue the European Union (EU) for its decision to introduce a windfall tax on energy companies, setting up the latest example of different approaches taken on both sides of the Atlantic over the issue.

LAWSUIT FILED

Exxon Mobil, through its subsidiaries in the Netherlands and Germany, filed a lawsuit on Dec. 28, 2022 against the EU for the solidarity tax contribution related to the use of a windfall tax to counter raising energy costs, claiming the EU levy “counterproductive.”

“The tax will undermine investor confidence, discourage investment, and increase reliance on imported energy and fuel products,” the company headquartered in Irving, in the south-central U.S. state of Texas, said in a statement, arguing the EU had exceeded its legal authority by doing so.

In response, European Commission spokeswoman Arianna Podesta said on the next day that it will be now up to the General Court to rule on this case.

“The Commission maintains that the measures in question are fully compliant with EU law,” said Podesta in a statement.

EU energy ministers agreed in late September 2022 to set a mandatory temporary “solidarity levy” on the fossil fuel industry, including the crude petroleum, natural gas, coal and refinery sectors. According to an analysis by PwC, this windfall tax of 33 percent will apply to 2022 excess profits, defined as profits that are 20 percent higher than the three-year average taxable profits starting from Jan. 1, 2019.

EU companies and permanent establishments will be subject to this windfall levy, which will be used to “provide financial support to households and companies and to mitigate the effects of high retail electricity prices,” said an EU press release.

RESPECTIVE LEVY

Even before the September agreement, several EU member states like Hungary, Greece and Italy had already introduced windfall taxes for their energy firms. The Italian government reportedly plans to apply a 50-percent one-off windfall tax in 2023 on surplus income earned by companies in 2022. Italian energy major Eni estimated that it would double its tax payments for 2022 to 1.4 billion euros (1.5 billion U.S. dollars).

Though somewhat reluctantly, Germany and France, the two biggest economies in the EU, introduced the levy through their respective legislations in the wake of the EU agreement on windfall taxes.

“This requirement from European law leads us onto thin ice in German tax law but it must be implemented,” Germany Finance Minister Christian Linder told a conference in November 2022. The tax could be challenged in Germany as a violation of the general principle of equal treatment of companies.

Overturning an early vote in July, France’s National Assembly voted in October 2022 in support of an amendment to raise taxes on dividends paid out by energy companies from windfall profits. French President Emmanuel Macron has been viewed as pro-business and against special tax hikes.

British Chancellor of the Exchequer Jeremy Hunt announced in November 2022 that his country’s windfall tax, introduced in May at 25 percent against the wish of then Prime Minister Boris Johnson, will now rise to 35 percent. The new tax will be effective from Jan. 1, 2023 till March 31, 2028. With this increase, total tax for oil and gas producing companies in Britain will add to 75 percent, said the British Treasury.

In response to Britain’s tax hike, France-headquartered oil producer TotalEnergies said it will cut investment in the North Sea in 2023 by 25 percent to 300 million pounds (363 million dollars), while Netherlands-headquartered Shell and Norway-headquartered Equinor both said they would re-evaluate their investment plan in Britain. London-based oil giant BP estimated it would pay 800 million dollars in windfall taxes in 2022 out of a total of 2.5 billion dollars in taxes from its British North Sea business.

BIDEN’S DILEMMA

Across the Atlantic, U.S. President Joe Biden expressed astonishment at social media platforms for the record profits announced by oil companies in their third quarter financial results, accusing the oil and gas companies of “war profiteering” while threatening to tax them on “excess” profits.

“In the last six months, six of the largest oil companies made over 100 billion dollars in profits. 100 billion dollars in less than 200 days,” Biden tweeted on Oct. 31, 2022.

“If these companies were taking average profits on refining, instead of the profits they’re making today, gas prices would come down around 50 cents,” the president said.

However, Biden has yet not supported an actual windfall tax, partly because there will not be enough congressional support to pass a windfall tax bill even before the November mid-term elections in 2022.

It is even more unlikely now for the Biden administration to introduce a windfall tax, not only because the Republicans have taken over the majority of the House of Representatives, but more importantly, because gasoline prices in the United States have returned to levels lower than those before the Russia-Ukraine conflict broke out in February, local analysts said.

According to the U.S. Energy Information Administration, the average retail gasoline price dropped to 3.32 dollars per gallon in December last year, lower than 3.41 dollars per gallon in January 2022.