By December 31 of this year, the government will implement the regulation approved by the European Council that introduces a 33% tax on extraordinary profits made by companies in the crude oil, natural gas, coal and refining sectors. In Portugal, this new tax, called the Temporary Solidarity Contribution (CTS), could deduct EUR 129 million from Galp Energia. This tax is in addition to the Extraordinary Contribution for the Energy Sector (CESE), which has been challenged in court by the oil company, and the corporate tax collection which, with the state and municipal surcharge, can be as high as 31.5%.
The European Commission, which proposed the measure, hopes to raise €25 billion next year to curb energy price increases, at the cost of taxing those sectors that have made significant gains from the energy crisis and the war in Ukraine.
Besides Galp, REN, EDP, Repsol, BP, Endesa or Iberdrola are other companies in Portugal that will have to pay the new tax from 2023, if they have made 20% more profit by 2022 than the average of the last three years.
In the case of Galp, which will present its results for the third quarter of the year next Monday, it is now possible to estimate the impact on the company’s accounts. In 2019, the oil company made a profit of 707 million euros, in 2020 it recorded a loss of 42 million and recovered last year with a positive result of 457 million euros. The average of the last three years is 374 million euros. The company announced a profit of 420 million in the first half, that is, it could reach 840 million by the end of this year. Taking into account the profit that was 20% above the average of the three previous years, 391 million euros is the taxable amount for the Temporary Solidarity Contribution of 33%: that is, 129 million euros of the profit generated by Galp will be channeled into the treasury.
The new tax will be levied on profits regardless of CESE, which applies rates ranging around 1% on the power values of energy assets, be they high-voltage grids, dams, natural gas distribution pipelines or refineries. This contribution also affects the value of the brand and the financial assets. It means that an extraordinary double tax will apply here, in addition to the tax that already exists in the IRC: nominal rate of 21%, municipal surcharge that can be as high as 1.5% and state surcharge that can be as high as 9% for profits above 35 million euros.
What matters is the size of the tax, ie whether it is levied on the results of the group as a whole or on individual companies. The Galp group owns: Petrogal, active in crude oil, biofuels and hydrogen refining; Galp Energia E&P BV which focuses on the exploration and production of oil, gas and biofuels (Upstream); but also Galp New Energies, linked to the renewable energy sector.
For the tax expert, Carlos Lobo, “it no longer made sense to maintain the CESE, which was supposed to be temporary, let alone raise the tax at another extraordinary rate”. “CESE, for example, was created in 2014 at the time of the Troika as an exceptional tax to fill the tariff deficit and is still in effect after eight years,” the tax law specialist criticizes, recalling that “the Constitutional Court in Italy has already extinguished that contribution”.
In the 2023 state budget proposal, António Costa’s socialist government maintains the prospect of raising €125 million in revenue from CESE, the same amount it included in this year’s budget. It turns out that not all companies pay the tax. Galp refuses deductions to CESE and maintains a dispute in court with the State. Unaware of the court’s final decision, the energy company has captive values in case it is asked to pull its wallet. According to the accounting report for the second quarter of this year, the company had forecast 18 million euros. On the state side, the government has set aside 40 million in case it has to return the tax received.
Carlos Lobo believes that “Portugal does not have the space to support this type of tax on extraordinary profits, especially when the tax takes as a reference the evolution of profits in light of the pandemic years, which is inappropriate”. “It is normal that the electrical producing companies now have much higher profits, increasing the difference and the tax to be paid,” he explains. The expert also warns of “the danger of businesses reflecting the tax hike on consumer bills, putting even more pressure on inflation.”
It is not a tradition in Portugal to deduct extraordinary rates from corporate tax, so the government can explore other ways to reduce the tax burden on companies. One of the hypotheses examined could be a reduction in the return on investment in green energy.
Despite these nuances, Carlos Lobo argues that companies should challenge the collection of this new tax in court. The expert acknowledges that “the European Union regulation is binding on all Member States”, but points out that “it has no super-constitutional value”.
Salomé Pinto is a journalist for Dinheiro Vivo
Source: DN
