ExxonM sues EU to avoid paying windfall tax on ‘big-profits’

Dec 29, 2022 Court Stories, Features / Columnists, News

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Kaieteur News – American oil giant, ExxonMobil on Wednesday filed a lawsuit to challenge and stop the European Union (EU) imposed windfall taxes, arguing that the Brussels exceeded its legal authority by imposing the levy.

Kaieteur News had reported that 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-shattering profits and as such, many Western Governments have introduced a windfall tax on the big profits to alleviate the cost-of-living crisis and balance their economy.

For the third-quarter of 2022, Exxon announced that its overall earnings was a record-shattering US$19.7 billion. The Financial Times reported that the lawsuit is the most significant response yet against the tax from the oil industry. The action threatens the viability of a levy the European Commission said would raise €25bn “to help bring down energy bills”.

The news agency also reported that Exxon said the lawsuit was filed on Wednesday by its German and Dutch subsidiaries at the European General Court in Luxembourg City. The lawsuit challenges the Council of the EU’s legal authority to impose the new tax — a power historically reserved for sovereign countries — and its use of emergency powers to secure member states’ approval for the measure.

It was also reported that the European General Court will decide whether to rule on Exxon’s lawsuit. If it does, any future judgment may be appealed at the European Court of Justice. Proceedings could drag on through much of next year.  The Commission is the EU’s Executive, which has the power to propose Legislation. The Council is the Inter-Governmental arm of the EU, in which representatives of its 27 member states debate and agree Legislation.

The new tax is due to take effect from December 31, 2022 and will apply a levy of at least 33 percent on any taxable profits in 2022-23 that are 20 percent or more above average profits between 2018 and 2021. Exxon, one of the largest petroleum suppliers in Europe, noted in a November filing that its tax liability under the new solidarity levy, could amount to US$2B through to the end of 2023.

Brussels has made regular use during the energy crisis of emergency powers granted in Article 122 of the Treaty on the Functioning of the EU. The article states that “in a spirit of solidarity” member states may approve Legislation directly from the Commission, circumventing the European Parliament, “in particular if severe difficulties arise in the supply of certain products, notably in the area of energy”.

Exxon’s lawsuit argues the windfall tax will not remedy any shortage of energy supply and so the Commission and Council were wrong to use emergency powers to secure its approval with a majority vote rather than a unanimous one.

The European Parliament has protested against the Commission’s repeated use of Article 122, saying that it undermines the democratic process even if laws would take much longer to pass with its involvement.

The EU’s levy was followed in November by the UK, which increased its windfall tax on oil and gas producers from 25 per cent to 35 per cent and extended it until 2028. The move prompted outcry from local Producers who said the measure would threaten future investment. Casey Norton, a spokesperson for Exxon, said the US super major recognised high energy costs were “weighing heavily on families and businesses” but argued the levy was “counterproductive” and would “undermine investor confidence, discourage investment and increase reliance on imported energy”.

On the local front, Exxon’s affiliate Esso Exploration and Production Guyana Ltd (EEPGL), is the operator of the country’s richest oil block (Stabroek Block) and continues 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. Guyana’s Stabroek Block is 6.6 million acres (26,800 square kilometers) and has approximately 11 billion proven barrels of oil. EEPGL holds 45 percent interest in the Block. Hess Guyana Exploration Ltd. holds 30 percent interest, and CNOOC Petroleum Guyana Limited holds 25 percent interest.

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