Brussels leaves the tax on energy companies' profits in the hands of the states

BrusselsThe Spanish government wants to tax the profits of oil and gas companies in the European Union. It considers that in the midst of an energy crisis, where prices have soared, these companies are obtaining extraordinary profits derived from the context. For this reason, together with four other countries, they brought their offensive to impose a levy on them to the Ecofin meeting this Friday. This tax was discussed at the informal meeting of Finance ministers, which took place in Dublin, according to sources from the Spanish government.

For the moment, however, at least outwardly, Brussels rules out presenting any legislative proposal in this regard. The European Commissioner for Economy, Valdis Dombrovskis, assured at the entrance to the working session that the decision of whether or not to set this tax is in the hands of the member states. In his view, it is the states and not the Commission that have the competencies, but he added that he is willing to "help member states to approach this focus," if necessary.

Spain and like-minded countries, among which is Germany, have presented their vision to push the proposal forward informally, with the hope of defining the next steps to approve the measure. According to sources from the Spanish government, the states have addressed the negative consequences of the price rise and the need to act. Despite Brussels' refusal, the Moncloa hopes that the discussion between member states regarding the initiative will continue.

Before entering, the Spanish Minister of Economy and Finance, Carlos Cuerpo, defended that this measure will allow "addressing the situation of households and businesses" thanks to a "fair distribution of the economic burden" derived from inflation. Thus, he asked the Commission to prepare a study on the profits that gas and oil companies have obtained since the start of the war in Ukraine and to tax them based on that.

The profits that are intended to be taxed are the so-called windfall profits (windfallprofits, in English). That is, the extraordinary and unexpected gains that energy companies achieve derived from external events (such as wars or the very regulatory design of the market) when the price of fossil fuels soars.

The Economy ministers of Portugal, Germany, Italy, Austria and Spain already showed themselves to be in favor of imposing this levy in April. At that time they sent a letter to the European Commissioner for Climate, Wopke Hoekstra, requesting a temporary solidarity instrument so that energy companies contribute with the extraordinary profits derived from the war and "ease the burden" on consumers and taxpayers. In the letter, they recalled that a similar tax had been set in 2022, when the Russian invasion of Ukraine caused fuel prices to soar. At that moment, the European Union introduced a "temporary solidarity contribution" as an emergency mechanism, which taxed 33% on extraordinary profits. Brussels collected about 28 billion euros, which were dedicated to reducing electricity and gas bills for individuals, as well as subsidizing fuel prices.

Since the start of the war in the Middle East, the price of oil (the reference in Europe is the Brent barrel) has increased between 14% and 15%, and the year-on-year inflation has rebounded to 3.3%. Given the context of inflation, which according to the European Central Bank will be more sustained and higher than expected, the Spanish executive is confident that its vision will prevail among the rest of the states.

Climate resistance fund

How should the funds raised by this levy be invested? The Spanish government's proposal is for them to be allocated to a climate resilience fund. The Spanish Minister for Ecological Transition, Sara Aagesen, requested in a letter to the European Commission at the beginning of September that it establish a climate adaptation fund to "strengthen the collective response to emergencies" and "anticipate climate risks." The text highlighted that many member states are highly exposed to the consequences of the climate crisis.

The Moncloa's initiative foresees other alternative financing routes for the creation of the fund. On one hand, additional taxes on polluting or luxury activities, such as the use of flights in private jets. And on the other, the issuance of community debt, which would allow for the creation of a European insurance system to cover major natural disasters. A mechanism that the President of the European Commission, Ursula von der Leyen, had already announced during the State of the Union address in Strasbourg.

This is not the first attempt by the Sánchez executive to establish a similar tax. In 2022, it already applied an extraordinary tax on large energy companies that was broader than Brussels': it applied a 1.2% rate on the turnover of companies with an annual revenue exceeding 1 billion euros. When the coalition government tried to extend it and make it permanent at the end of 2024, the measure stalled in Congress due to a lack of support from partners such as Junts and the PNB. The levy finally lapsed at the beginning of 2025.