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This week in tax: North Sea profits raise calls for a UK windfall tax

Gas crisis set to continue

BP and Shell have reported record-breaking profits as the UK faces a natural gas crisis. The UK government is yet facing more calls for a windfall tax to be imposed on the industry.

North Sea companies are reporting vast profits and some people are calling for a windfall tax. BP reported its profits increased to $12.8 billion in 2021 – the largest raise since 2013. The company has dramatically reversed its fortunes since 2020 when it reported losses of $5.7 billion.

Likewise, Shell reported its profits increased to $19.3 billion in 2021. This is an increase from $4.8 billion in just a year. The European gas shortage is driving up prices and the UK is particularly vulnerable given supply chain problems since its withdrawal from the EU.

This news has sparked yet more calls for a windfall tax on these ‘excessive’ profits. So far, the UK government has dodged the question and introduced a public interest business protection tax with a 75% rate on shareholders cashing out contracts during this crisis.

The UK would not be alone if it adopted a windfall tax. The Spanish government is levying a windfall tax on energy providers, making ‘excessive’ profits from the surging price of gas. The plan is projected to raise €3 billion ($3.4 billion) for infrastructure investments.

The UK government may be about to copy the Spanish windfall tax to offset the impact on living costs. The UK has seen some of the highest increases in gas bills in Europe while several energy providers have collapsed.

However, the UK energy price cap is set to rise in April and many households could see their bills increase by more than 50%. The government may have to step in to alleviate the cost of fuel through VAT relief, but the calls for a windfall tax will continue.

ITR Global Tax 50 2021-22: Pascal Saint-Amans

The Centre for Tax Policy and Administration secured one of its greatest achievements in 2021: the endorsement of a global tax framework bound to reform the tax system across the world.

“Even after the election of Biden, very few people believed that we could reach an agreement and that we could reach a global agreement with almost all the countries part of it. And that’s what we did,” says Pascal Saint-Amans, director of the Centre for Tax Policy and Administration at the OECD.

The OECD had set itself a deadline of mid-2021 to reach an agreement on the pillar one and pillar two proposals. However, US President Joe Biden only took office in February 2021, leaving the Paris-based organisation with a few months to achieve its goals.

Saint-Amans says time management was very difficult “because it was a reset of the project” and having only a few months to finalise an agreement during the COVID-19 crisis added more pressure.

With more than 130 jurisdictions on board, the implementation of pillar one and pillar two is as close as it’s ever been, but more details remain to be established this year.

The OECD aims to deliver a coordinated approach for pillar two, as well as a multilateral convention for pillar one, in a bid to provide more stability to the international tax system. Taxpayers can also expect further development on issues including carbon tax, digitalisation, and the taxation of cryptocurrency transactions.

Read the full interview here

OECD launches last-minute consultation on pillar one and two

The OECD is seeking business feedback on draft nexus and revenue sourcing rules in Amount A in pillar one of its two-pillar solution to the tax challenges of the digital economy by February 18.

The next step in the OECD’s digital tax agenda is a series of consultations on pillar one, starting with questions on the draft nexus and revenue sourcing rules under Amount A. There will also be a consultation in March on pillar two’s implementation mechanism. 

The consultations on the two-pillar framework will be held until April to allow time for business leaders to provide feedback and countries to draft legislation due by 2023.

“It took a few weeks for people to go through the model rules for pillar two, think over the implications and realise that every country would just introduce a domestic minimum top-up tax so that all the additional revenue would be collected by the low tax countries,” said one head of tax at an investment management company. 

“Let us see how long it takes with pillar one before we arrive at a consensus,” he added.

While a few countries including the UK have already published draft legislation on pillar two and prepare for pillar one, the business commentary to come from the OECD’s consultation might revise the approach that countries take to implement a standard two-pillar digital tax solution.

Read the full article here

Next week in ITR

ITR will continue its Global Tax 50 profiles. Readers can expect a profile of European Commission President Ursula von der Leyen on the EU’s tax projects in 2022.

Meanwhile, Leanna Reeves carried out an exclusive interview with Logan Wort, executive secretary at African Tax Administration Forum (ATAF). Global Tax 50 will also feature entries on the Gulf Cooperation Council (GCC) and its tax reforms.

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more across site & bottom lb ros

More from across our site

An intense period of lobbying and persuasion is under way as the UN secretary-general’s report on the future of international tax cooperation begins to take shape. Ralph Cunningham reports.
Fresh details of the European Commission’s state aid case against Amazon emerge, while a pension fund is suing Amgen over its tax dispute with the Internal Revenue Service.
The OECD’s rules may be impossible for businesses to manage, according to tax experts from companies including Shell.
The UK government is now committed to replacing the ‘super-deduction’ with a 100% capital allowances regime to offset the impact of the corporate tax rise to 25%.
Corporate tax is set to rise in the UK for the first time in decades, but the headline rate remains historically low despite what many observers think.
President Joe Biden’s nominee is set to be confirmed as IRS commissioner for a five-year term.
British companies are waiting to hear the details of what will replace the 130% ‘super-deduction’ next week, while Spain considers stopping a major infrastructure company moving to the Netherlands.
President Joe Biden wants to raise corporate tax and impose a higher stock buyback tax on US businesses, but his budget proposal faces insurmountable obstacles in Congress, writes Ralph Cunningham.
EY is still negotiating the terms of the plan to split its audit and consulting functions, but the future of tax services is reportedly a sticking point.
Country-by-country reporting is the best option for safe harbour provisions under the global anti-base erosion rules, according to tax directors at companies including Standard Chartered Bank and Pernod Ricard.