Controversial debate: What is behind the excess profit tax?

Crises or wars bring many losers with them.

But also winners.

In the current fuel and energy price debate, there is a controversial debate about a possible tax on corporate profits, which would probably have been lower in times of no crisis.

Questions and answers on such an excess profit tax:

What is an excess profit tax?

The scientific service of the Bundestag describes such a levy as a tax that burdens the profit going beyond a "normal profit".

What should be considered “normal” and what should be considered “over” profit can be calculated differently, as the scientific service explained in March 2021 on the impact of the corona pandemic. Usually, comparative periods from before the crisis or times of peace are used and then returns that were common in those times.

There are several historical examples of an "excess profits tax": For example, such a tax was levied in the USA during the two world wars, but also in Great Britain and France.

In most cases, the aim was to cover the extraordinarily high financial needs of the state, but also to skim off profits from certain sectors "that were generated either as a result of or during the war and were therefore felt to be unfair", as the scientific service continues.

An excess profit tax is currently being discussed, especially in connection with the Russian war of aggression against Ukraine, the economic consequences of which pose problems for many companies, but also enable significantly higher profits in the armaments and energy sectors.

In which countries are such tax measures currently in place?

In Great Britain, Finance Minister Rishi Sunak wants to flush around five billion pounds (around 5.9 billion euros) into the state coffers with a "windfall tax" presented at the end of May and thus lift parts of a relief package for British households plagued by inflation.

Oil and gas companies such as BP and Shell are to temporarily pay 25 percent tax on their additional profits that can be attributed to the sharp rise in oil and gas prices.

However, companies should also be able to reduce their tax burden if they make investments at the same time.

"Windfall Tax" refers to taxes on profits that accrue to companies more or less randomly, i.e. unexpectedly.

In Hungary, too, there is to be a special tax on additional profits from price increases caused by the Ukraine war this year and next.

This should bring in two billion euros.

Italy had already announced a tax on additional profits from energy companies in March.

Here the levy should be ten percent on additional profits.

How is the discussion in Germany?

The Left Party has been calling for an excess profit tax for a long time.

The Greens are also open to this.

In view of the fuel price debate, party leader Ricarda Lang explained that an excess profit tax was a "logical step" "if the mineral oil companies are obviously exploiting the current crisis to make huge profits".

On Saturday, SPD General Secretary Lars Klingbeil called the proposal "very worth considering".

Federal Finance Minister Christian Lindner (FDP), on the other hand, had already expressed criticism in the “Spiegel” in mid-May: An excess profit tax “would also affect the manufacturers of vaccines, wind and solar power plants or semiconductors,” he argued.

“They make profits because they use their skills to eliminate shortages.

I don't want to take away any impetus from all of them to produce more."

When asked whether the tax could not be limited to certain sectors, Lindner warned that "arbitrariness" would then threaten: "I like this market participant and I don't like this one." The tax system is not intended for that.

In its study, the scientific service of the Bundestag refers to a number of constitutional questions relating to an excess profit tax, but also to the fact that the legislature has a wide scope for design, which can only be measured by the ban on arbitrary decisions.

In March, the EU Commission basically gave the green light for member states to “consider temporary tax measures on random profits and, exceptionally, decide to earmark part of these profits for redistribution to consumers”.

However, "excessive market distortions" must be avoided.