{"id":7852,"date":"2022-09-29T11:13:07","date_gmt":"2022-09-29T10:13:07","guid":{"rendered":"https:\/\/www.taxpolicy.org.uk\/?p=7852"},"modified":"2022-09-30T09:01:39","modified_gmt":"2022-09-30T08:01:39","slug":"market_cap_tax","status":"publish","type":"post","link":"https:\/\/heacham.neidles.com\/2022\/09\/29\/market_cap_tax\/","title":{"rendered":"Can we “windfall tax” energy companies’ capital appreciation?"},"content":{"rendered":"\n

The EU Tax Observatory have just published an excess profits tax proposal<\/a> which would tax listed energy companies on 33% of the increase in their market capitalisation in 2022. EU headquartered companies get fully taxed. Non-EU headquartered companies get taxed pro-rata to their sales in the EU.<\/p>\n\n\n\n

So, for example, if the UK was to implement such a tax1<\/a><\/sup>which it almost certainly won’t<\/span> then BP and Shell, whose market cap has increased by c\u00a3150bn so far this year, would pay \u00a350bn in tax.<\/p>\n\n\n\n

This is a highly unusual proposal, and therefore interesting from a tax policy standpoint. I’m very conscious of the “not invented here” problem in tax policy, and I don’t want to bash this proposal just because I view my, simpler and more conventional, windfall tax proposal<\/a> as preferable. However, there are five issues with this proposed tax which illustrate why conventional tax designs are often more effective. These kinds of design choices are going to be critical when (and I think it is a “when”) ambitious windfall taxes become a political inevitability.<\/p>\n\n\n

1. Breaching the norms of international taxation<\/h2>\n\n\n

There is much to criticise about the norms of international taxation, but one thing is inarguable: the further a tax departs from these norms, the more likely there are to be geopolitical complications. The various digital services taxes causes ructions and the threat<\/a> of a trade war, even though the amounts raised were extremely<\/a> modest<\/a>. <\/p>\n\n\n\n

Imposing a very unusual \u20ac10bn+ tax on national champions such as Saudi Aramco, Equinor, Exxon and BP seems much more provocative than the digital services taxes, and is therefore very likely to trigger complaints that the tax is contrary to international norms. Others can comment on the likely geopolitical consequences with more authority than I can.<\/p>\n\n\n

2. Potential breaches of WTO\/GATS<\/h2>\n\n\n

As a practical matter, complaints about taxes breaching international norms often take the form of arguments that the taxes are contrary to WTO\/GATS. Often this is theoretical (on the part of academics) and rhetorical (on the part of politicians) rather than leading to an actual WTO challenge; we certainly saw<\/a> this dynamic playing out<\/a> for the digital service taxes.<\/p>\n\n\n\n

Here there would be two arguments:<\/p>\n\n\n\n