The Lemon Fool

Windfall taxes have been mentioned a lot in the press recently, WT on oil companies both here and possibly the US too. Mention of WT on the renewables sector have been mentioned also, although I don't know whether they are still on the table. They seem to me to be a recent phenomenon but my - possibly faulty memory - seems to recall that George Osborne introduced one too, although i don't remember the details. Are WT a recent phenomenon? On the face of it they seem unfair to shareholders who take the investment risk yet have the upside reduced by WT. Do others here see them as fair or desirable? They do seem to be becoming more common.

RC

ReformedCharacter wrote:Windfall taxes have been mentioned a lot in the press recently, WT on oil companies both here and possibly the US too. Mention of WT on the renewables sector have been mentioned also, although I don't know whether they are still on the table. They seem to me to be a recent phenomenon but my - possibly faulty memory - seems to recall that George Osborne introduced one too, although i don't remember the details. Are WT a recent phenomenon? On the face of it they seem unfair to shareholders who take the investment risk yet have the upside reduced by WT. Do others here see them as fair or desirable? They do seem to be becoming more common.

RC

Don't get me started! They are an easy target - a bit like coming after BTL landlords. I have endless arguments about it with my lefty offspring, but as I see it windfall taxes are asymmetric - it's not as though there's a pay back when times are tough as when BP ran losses or cancelled dividends. As you say, shareholders had the guts to take the risk and should therefore reap the reward.

It's just the politics of envy. As soon as someone sees you win a bit, they want to put their hand in your pocket.
It's all part of the mentality that says governments think they can spend your money better than you can yourself.

Arb.

While they seem fair, the oil companies have to fend on their own when it goes the other way
E.g. BP and Deepwater Horizon oil spill which cost them in excess of $63bn

Arborbridge wrote:

ReformedCharacter wrote:Windfall taxes have been mentioned a lot in the press recently, WT on oil companies both here and possibly the US too. Mention of WT on the renewables sector have been mentioned also, although I don't know whether they are still on the table. They seem to me to be a recent phenomenon but my - possibly faulty memory - seems to recall that George Osborne introduced one too, although i don't remember the details. Are WT a recent phenomenon? On the face of it they seem unfair to shareholders who take the investment risk yet have the upside reduced by WT. Do others here see them as fair or desirable? They do seem to be becoming more common.

Don't get me started! They are an easy target - a bit like coming after BTL landlords. I have endless arguments about it with my lefty offspring, but as I see it windfall taxes are asymmetric - it's not as though there's a pay back when times are tough as when BP ran losses or cancelled dividends. As you say, shareholders had the guts to take the risk and should therefore reap the reward.

It's just the politics of envy. As soon as someone sees you win a bit, they want to put their hand in your pocket. It's all part of the mentality that says governments think they can spend your money better than you can yourself.

It's also part of the illusion that we can tax things and then somehow we don't have to tax people. People vote, things don't vote, and people can easily be persuaded that they are getting a free lunch here.

It's nonsense of course, as companies simply pass through the cost of such taxes in one way or the other. Ultimately only people can pay taxes.

But there is usually a lot more talk about windfall taxes than action. Labour routinely and mindlessly talks about them on banks, energy companies etc., but the only one I recall being implemented was something on privatised utilities. And whilst Biden is making noises about them it is just mid-term election rhetoric. Only Congress can do that and it is not interested.

Perhaps a good reason to invest in Exxon over BP, however? Less of a culture of envy in the US.

The company is normally taxed anyway such as corporation tax in the UK. So this would be a tax on top of a tax.

I don't know how it would work in companies that work in multi jurisdictions or if the company just moves its HQ or tax responsibility off shore or to a different local.

I think it sends the wrong message generally and why would you think of investing and creating jobs here when any meaning ful profits can just be taken away at a whim. That might end up a larger cost albiet unsighted than the tax brings in.

It's mentioned that the wind generators are those that benefit most, so as we want or need to go green are we going to take their extra money that they have made which could be reinvested into building more or will the fat cats win the argument with there billions in dividends. (Some of which might get taxed).

It's also most likely taking from pensioners as most private pensions are likely to hold BP or Shell. You can explain to granny that really she's really the fat cat.

Most of the time taxes like this do more harm than good and don't bring in the expected revenue as adjustments are made.

Think of the window tax and more recently if you have been out to Cyprus. Most houses look unfinished because there is an extra tax when the roof is finished. So most are ready to build another story on top.

George added an extra level of tax on UK oil I seem to remember and the latest allowed extra investment to reduce the extra tax, which seems to have been used.

ReformedCharacter wrote: Are WT a recent phenomenon? On the face of it they seem unfair to shareholders who take the investment risk yet have the upside reduced by WT. Do others here see them as fair or desirable? They do seem to be becoming more common.

RC

They are not a recent or even unfortunately an infrequent phenomenon. A quick google will show them dating back to the 81 in the UK (on Banks). There is nothing that gets me more incensed than when a journalist calls them a "one off" tax, though I suspect that they mean "not automatically reoccurring".

Fair? In what sense? The argument often made is that those being taxed are benefiting from something that they did not work for. So we charge UK oil and gas companies because gas is cut off from Russia. For years we have been trying to replace fossil fuels with renewable, so if they are making a contribution to the needed energy, we tax them because they didn't work to be able to provide energy supply when gas from Russia is cut!

Desirable? In what sense? Well it will provide the state needed income. Of course it's income produced by private investment. Will private individuals continue to invest given that any return belongs not to them but the state? Speaking personally, I won't be topping up or providing extra funds to my investments in anything suffering a WF tax. Indeed I would be glad to hear if such companies moved their business and profits to a jurisdiction where they had some certainty of what tax they will pay.

When I subscribed to TRIG, so that they could invest in windfarms I thought building them would be a good thing and that I would share in the profits. I now find that what I did is not valued at all and rather than being rewarded for increasing the countries energy security a "Windfall" tax will be levied. I should have invested in foreign windfarms shouldn't I?

We live in a democracy and to get votes politicians will do what ever they can to have people vote for them and will shamelessly use the media to put forward their message.

We now have significant groups who believe in direct action & who are prepared to risk imprisonment to get their message across.

In the mean time we have an economy that is not growing strongly and rising prices & voters know they have leverage against the politicians & they are using it.

Unless policies are changed to promote economic growth we are stuck in an environment where WT are a threat to any business & where pressure groups are prepared to bypass the slow process of the ballot box to get what they feel is needed.

Maybe a statesperson will emerge & change the narrative, but for now enough powerful people are doing very well indeed & are happily getting richer.

Regards,

Gerry557 wrote:I don't know how it would work in companies that work in multi jurisdictions or if the company just moves its HQ or tax responsibility off shore or to a different local.

Companies pay tax where they make profits. HQ and where the gross company profits are declared make no difference at all. So the gross profit headlines beloved of the media really have little meaning for tax gatherers. Of course there are many accountancy tricks “internal supply chains”, “royalties”, “internal consultancy”, “IT provisions” & “advertising budgets” which make it possible to move profits to lower tax countries.

AIUI Shell haven’t declared a profit in UK since 2017 due to entirely legal investment offsets.

Gryff