The regulation addresses “surplus profits” from an economic activity performed by a company generating at least 75% of turnover in the field of extraction, mining, refining of petroleum or manufacture of coke oven products, which according to the tax laws of that Member State is considered to be tax resident in that Member State. Also covered are relevant profits of a permanent establishment, i.e. a fixed place of business situated in a Member State through which the business of a company of another State is wholly or partly carried on in so far as the profits of that place of business are subject to tax in the Member State in which it is situated by virtue of the relevant double tax treaty or, in the absence of such a treaty, by virtue of national law.
To calculate the relevant surplus profit, the taxable profits of the company generated in the fiscal year 2022 are compared with the average taxable profits of the three preceding fiscal years (starting on or after Jan. 1, 2019). If the taxable profits in 2022 are more than 20% higher, then the excess amount shall be subject to a solidarity contribution at a rate of at least 33%. It is remarkable that the total profits of the company or permanent establishment are used for the calculation of the solidarity contribution, irrespective of whether they derive from “surplus” operational profits in the extraction, mining, refining of crude oil or the production of coke oven products or from profits deriving from extraordinary business activities (such as mergers and acquisitions or group restructurings). This would not be in line with the objective to cover only “surplus profits” from the usual business of such company.
Whether the solidarity contribution is itself tax deductible is a matter of the tax laws of the relevant Member State. Since it is not an “income tax” there are good arguments that it is fully tax deductible for German corporate income tax and trade tax purposes. If so, the solidarity contribution would decrease the German corporate income tax and trade tax burden of the respective company so that it would not be in addition but would partially replace the local taxes.
Furthermore, it is unclear whether the objectives of the proposal can be achieved by it. According to Art. 16, the proceeds from the temporary solidarity contribution shall be used by the Member States with sufficiently timely impact for specific measures, in particular measures leading to relieve of final energy costumers and companies in energy intensive industries. However, it remains unclear how that should be achieved with the proposed solidarity contribution because it can only be assessed (and paid by the respective company) after the tax assessment of the respective Member State has taken place. Due to long deadlines to file a tax declaration and also long processing times of the local tax authorities it can take years until the solidarity contribution can be assessed.
It remains to be seen whether the final proposal addresses some of the issues mentioned above.
Authored by Dr. Heiko Gemmel and Dr. Stefan Schröder.