Taxation of Windfall Profits. Conceptional Considerations, Challenges and European Initiatives

Michael Böheim; Michael Peneder; Margit Schratzenstaller

08.09.2022

Taxation of Windfall Profits

Conceptional Considerations, Challenges and European Initiatives

In a recent WIFO Research Brief, Michael Böheim, Michael Peneder and Margit Schratzenstaller argue that the comparatively small share that remains with private investors from windfall profits in Austrian energy companies does not justify the introduction of a windfall profits tax.

Moreover, from a location policy perspective, an ad hoc windfall profits tax remains problematic. An electricity cost brake with a price cap for a defined basic quota of electricity consumption therefore seems to be more advisable, provided that the energy supply companies are merely reimbursed for the current procurement or production costs (with an imputed profit mark-up).

Often, crisis events are associated with windfall profits for certain sectors. In the current energy crisis, some electricity producers in particular are recording additional profits compared to the pre-crisis period. Currently, the introduction of a windfall profit tax is being discussed in order to make the affected companies or sectors contribute to the financing of the crisis costs. Seven EU countries have already implemented a windfall profits tax or are planning to introduce one.