The General Court reviews windfall tax

28. 2. 2023

The American multinational company, Exxon Mobile, has decided to take a legal action through its subsidiaries in the Netherlands and Germany before the General Court of the European Union to revoke the EU's windfall tax measure.

According to Exxon Mobile, the measure was not only adopted in violation of the European Union's competences, but also, in the company's view, it threatens the future investments in the sector and is more likely to increase dependence on energy imports.

The package of measures to reduce high energy prices was approved in September 2022. The regulation was adopted on a proposal from the European Commission by a qualified majority vote under the procedure under Article 122 of the Treaty on the Functioning of the European Union, which in practice means that it was not submitted to the European Parliament as in the normal approval process. In this aspect, Exxon Mobile claims that the EU has exceeded its powers, because the measure itself does not solve the problem of raw material supply, but only regulates its price.

The EU legislation specifically imposes an additional tax of 33 % on oil and gas companies this year and in the upcoming year, provided that their profits have increased by at least 20 % compared to the average profit in the previous 3 years. The Regulation also allows member states to extend the range of companies affected beyond those explicitly identified in the fossil fuel extraction and processing industries to other sectors at their discretion.

In the Czech Republic, the windfall tax applies from 1 January 2023 and besides the energy and petroleum sectors, it also includes the largest domestic banks. The tax rate approved by the Chamber of Deputies is 60 % and is imposed as a tax surcharge on top of the 19 % corporate income tax. Excess profits are then calculated by comparison of this year's tax base with the average tax base over the previous 4 years, i.e., from 2018 to 2021, with a variation up to 20 %.

The legal action is now being reviewed by the General Court and, if it makes a decision on the matter, it is possible to file an appeal to the Court of Justice of the EU. The European Commission maintains its position that the Regulation was adopted in accordance with EU law. The final decision could therefore be issued within a few months; however, the action does not affect the legal force of the legislation.

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