Several countries going after windfall tax as oil giants rack up big profits

Nov 29, 2022 News

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…while Exxon and Partners enjoy tax-free ride in Guyana

By Renay Sambach 

Kaieteur News – For the month of November, Kaieteur News reported on several countries that have either increased the ‘Windfall Tax’ on oil and gas companies or have signalled their intention to do so.

A windfall tax is a one-off tax imposed by a Government on a company, specifically targeting those that benefit from something they were not responsible for.  In this instance, the ongoing Russia-Ukraine war has sent oil prices soaring and triggering a cost-of-living crisis in many countries. Amid the war, oil and gas companies have been seeing record-breaking profits. For just the third-quarter of 2022, American oil giant, ExxonMobil announced that its overall earnings was a record-shattering US$19.7 billion – whereas US-oil major Hess reported that it earned a net income of US$515 million and China National oil company (CNOOC) recording US$5.1 billion.

British oil and gas giants, like Shell and BP, also posted record profits this year. For the third-quarter of 2022, BP recorded US$8.2 billion for the three months through to the end of September – whereas Shell recorded US$9.45 billion for the same period. The oil majors’ big profits this year have led to several Governments implementing windfall tax, with most countries aiming to use the money to alleviate the cost-of-living crisis.

While the oil giants’ profits are being taxed in foreign countries – Exxon Guyana, Hess Guyana Exploration Ltd and CNOOC Petroleum Guyana Limited have been enjoying tax-free profits here with the Government of Guyana (GoG) disclosing that it has no intention on implementing a windfall tax.

In Guyana’s case Exxon’s affiliate, Esso Exploration and Production Guyana Ltd (EEPGL), is the operator of the country’s richest oil block (Stabroek Block).Guyana’s Stabroek Block is 6.6 million acres (26,800 square kilometers) and has approximately 11 billion proven barrels of oil. Exxon and its partners pay no taxes in Guyana and continue to enjoy tax-free earnings owing to the Production Sharing Agreement (PSA) Guyana signed onto with the oil major. According to the 2016 PSA, Guyana has agreed to, under the taxation provisions, to pay ExxonMobil’s share of Corporation and Income Tax. As such, it would mean, that Guyana foregoes each year, billions of US dollars. On top of this, documentation to this effect is then provided to the US based company allowing it to not have to pay any taxes in its home country for its earnings overseas.

Kaieteur News had reported that despite the oil companies already not paying taxes, President Irfaan Ali is adamant that Guyana is new to the oil business and as such he stated that this country will not be implementing a windfall tax on the oil companies nor will Exxon and its affiliates be subjected to the new terms his administration announced for future oil blocks.

COUNTRIES IMPLEMENTING/INCREASING WINDFALL TAX

The most recent country to go after windfall tax is Italy. On Monday Reuters reported that Italy plans to apply a 50 percent one-off windfall tax next year on surplus income of energy companies that have benefited from the surge in oil and gas prices, a draft of the government’s 2023 budget seen by Reuters.

The levy has a rate equal to 50 percent of the part of 2022 corporate income which is at least 10 percent higher than the average income reported between 2018 and 2021. It has a ceiling equal to 25 percent of the value of net assets at the end of 2021, Reuters reported. “The scheme is different from the way it was outlined by the Treasury only last week. That version envisaged a 35 percent tax running from January until July 2023 and calculated on energy companies’ net profit, rather than income as in the latest draft,” the media agency said.

It was also stated that Rome expects to raise around 2.565 billion euros (US$2.66 billion) from the tax, which follows a framework proposed by the European Commission and replaces a similar levy in force this year which has triggered criticism and refusals to pay from multiple firms.

Kaieteur News reported last Friday that the German Finance Ministry announced its plan to levy same at 33 percent, this is according to the German national newspaper, Die Welt reported. Die Welt reported that the German Ministry aims to introduce a 33 percent tax on oil and gas companies that have benefited from windfall profits. The German newspaper cited a draft document and said that companies in the oil, gas, coal and refining sectors whose profits for 2022 and 2023 are more than 20 percent higher than the average profits of 2018 to 2021 would have to pay the extra tax. It was stated that the Government aims to use the revenues and the skimming off of excess profits in the energy sector to cover the financing of an electricity price brake. From this the Ministry has estimated to raise additional revenues of US$3.1 billion.

On November 19, 2022, this publication reported that, four months after it introduced a windfall tax on crude oil in their country – the Government of India announced that it will be further taxing domestically produced crude, amid the sudden spike in crude oil prices that have led to ‘big-profits.’ It was reported that on July 1, 2022, the Indian Government introduced the windfall tax on crude oil. However, the Government on November 16 announced that it has decided to move up the windfall tax on crude oil from the current from 9,500 rupees (US$116.49) per ton, to 10,200 Indian rupees (US$125.22) per ton.

Similarly, it was reported by this publication that British Finance Minister, Jeremy Hunt announced that the Government is increasing the windfall tax on oil and gas operators from the current 25 percent which was announced in May of 2022 to 35 percent.

The British Government’s move to raise the tax on the big profits being made by oil majors is to alleviate the cost-of-living crisis and balance their economy. Hunt said, “I have no objection to windfall taxes if they are genuinely about windfall profits caused by unexpected increases in energy crisis.” He then disclosed that the energy profits levy will increase from 25 percent to 35 percent. He added that the increase will take effect from January 1, 2023 and last until March 2028.

For their part, the Government of Spain is moving ahead with its Windfall Tax Bill which is intended to levy US-billions from banks and energy companies to alleviate the cost-of-living crisis being experienced by Spanish families. Last Friday, the Bill was approved by Spain’s Congress, which is the lower house of parliament. It was stated that with Congress’ approval, the Bill will be sent to the Senate for final vote, where it could be approved as is, if the upper house does not add any amendments – this is according to an international news reports.

As for Czech Republic, earlier this month they imposed its first windfall tax on some of the biggest businesses to help finance energy subsidies without boosting government borrowing. Kaieteur News had reported that the country’s lawmakers on November 4 approved Finance Minister, Zbynek Stanjura’s proposal to slap a 60 percent ‘tax surcharge’ on the main energy companies and banks. It was stated that the levy will be in place for the next three years and target extraordinary profits caused by surging energy prices and high interest rates.

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