Superprofits: To tax or not to tax? (EN/FR)
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Superprofits: To tax or not to tax?
Crises tend to polarize the business world: some industries suffer (sometimes until bankruptcy) while other sectors strongly benefit from unusual situations to the point that they extremely overperform compared to their usual results, without changing anything in their strategy.
You have certainly heard about “superprofits” these past weeks, as they have given rhythm to the business news. In particular, their taxation is shaking the big energy corporations and shipping companies: auditions of CEOs of Engie, TotalEnergies, CGA-CGM and debates have been running at the French Assembly for a month.
But why taxing superprofits creates such debates?
This article is aimed at giving insights on the debate and difficulties regarding the taxation of superprofits following the war in Ukraine.
I- Geopolitical tensions contributing to profitability
War in Ukraine has triggered huge geopolitical tensions, especially concerning energy and shipping. Russia being one of the biggest producers and exporters of natural gas worldwide and in particular providing gas to western Europe countries, Putin leverages this power to put pressure on Ukraine allies and counterbalances strengths.
There is no need to have Buffet’s finance knowledge to understand that scarcity goes along with inflation and rising prices. Consequence: certain industries have made unusual performances and in particular big European energy providers as electricity prices are indexed on gas prices.
The French companies TotalEnergies and Engie have more than doubled their net profits in S2 2022 compared to S2 2021, with $5.6B and $5B respectively. At the European level, same conclusion: Shell (UK/Netherlands) has broken its financial record done in 2008 as the company has tripled its net profits in S1 2022 amounting to $9.13B. BP’s (UK) net profits have also tripled in the same period. Net profits of Enel (Italy) have gained 21% compared to S1 2021.
The phenomenon is not constrained to the energy sector: the French shipping company CGA-CGM has made a net profit of $7.6B in S1 2022 almost equivalent to the full year of 2021 and thus beating TotalEnergies’ performance.
This situation is entirely independent of new strategic or operational plans from these companies, it is only due to the geopolitical context favoring energy and shipping revenues.
In a nutshell, external factors are increasing profits of companies in a certain industry independently of internal strategic choices they have made.
II- Superprofits, how are they defined?
Superprofits are not new to Ukrainian war, such overperformance has already happened several times in history: during the energy crisis in the 1970s or remember the aforementioned net profits old record of Shell which occured in 2008…
The concept was first introduced by Karl Marx in “Das Kapital” in the 19th century. But since WWI, it has been related to the “war profiteers”, in particular in the armaments sector.
More broadly, it refers to exceptional profits in a business sector due to unusual external factors, without any fundamental changes in strategy or operations.
Most politicians agree on the necessity to tax these profits, as a way to fairly redistribute to consumers this extra money companies have made without spending any additional effort, therefore giving back power purchase. Others consider that the negative effects of such a tax would outweigh the revenues, as businesses would have no reason to continue their investment efforts and consumers would be left.
However, the main issue about taxing these exceptional profits remains the following: what method should we use to tax them?
III- The two international taxation regimes
As the energy producers concerned by the super profits are making business worldwide, the two main international tax systems need to be introduced to understand the complexity of choice of methods to tax these profits.
These regimes all respect the non double taxation principle, stated in international fiscal conventions signed by several countries (including France). This principle ensures that profits made by international companies are not taxed twice.
The first type of regime is based on territoriality: profits made in a country are taxed in this country.
The second type adopts a more global vision: taxation is done in the home-country of the company for all profits made in the subsidiaries.
IV- Numerous difficulties to tax super profits
Being aware that these different tax schemes exist, the complexity for European politicians is to impose common taxes in their respective countries. The exact definition of superprofits being unclear, they are also struggling to find an agreement on a similar tax computational method.
Another difficulty is fixing the profits threshold from which companies are being taxed, to avoid penalizing smaller businesses.
Finally, they are confronted with choosing which sector to tax. Such a choice can create tax inequalities between companies with close profiles but part of different industries.
V- What has been concluded?
No European consensus has been made to tax superprofits but most European countries agree on its necessity. As for previous crises, superprofits are still difficult to set up.
What has been decided so far in several countries is to impose a contribution (indexed on revenues) rather than pure tax (indexed on profits), for energy groups only.
Starting with Greece, Romania, then Italy is now taxing superprofits at 10% rate, and Spain even taxing them at 25% rate.
The UK, and lastly Germany have also gone in this direction. And despite most ministers being at first reluctant to tax super profits, Macron has finally decided to follow.
CGA-CGM is therefore saved for this time…
Superprofits : Taxer ou ne pas taxer ?
Les crises ont tendance à polariser le monde des affaires : certaines industries souffrent (parfois jusqu'à la faillite) tandis que d'autres secteurs profitent fortement de situations exceptionnelles au point de réaliser des performances extrêmement supérieures à leurs résultats habituels, sans rien changer à leur stratégie.
Vous avez certainement entendu parler des "superprofits" ces dernières semaines, tant ils ont rythmé l'actualité économique. En particulier, leur taxation fait trembler les grands groupes énergétiques et les compagnies maritimes : des auditions des PDG d'Engie, TotalEnergies, CGA-CGM et de nombreuses discussions ont lieu à l'Assemblée française depuis un mois.
Mais pourquoi la taxation des superprofits crée-t-elle de tels débats ?
Cet article a pour but de donner un aperçu des difficultés concernant la taxation des superprofits suite à la guerre en Ukraine.
I- Des tensions géopolitiques qui contribuent à la rentabilité
La guerre en Ukraine a déclenché d'énormes tensions géopolitiques, notamment en matière d'énergie et de transport maritime. La Russie étant l'un des plus grands producteurs et exportateurs de gaz naturel au monde et fournissant notamment du gaz aux pays d'Europe occidentale, Poutine profite de cette puissance pour faire pression sur les alliés de l'Ukraine et contrebalancer les forces en présence.
Il n’est pas nécessaire d'avoir les connaissances financières de Buffet pour comprendre que la rareté va de pair avec l'inflation et la hausse des prix. Conséquence : certaines industries ont réalisé des performances inhabituelles et notamment les grands énergéticiens européens, les prix de l'électricité étant indexés sur ceux du gaz.
Les entreprises françaises TotalEnergies et Engie ont plus que doublé leurs bénéfices nets au S2 2022 par rapport au S2 2021, avec respec