Windfall Profit Taxation in Europe (and Beyond)

Round 1

Reviewer 1 Report

Thank you for the opportunity to provide a review for the article entitled: ”Windfall Profit Taxation in Europe (and Beyond)” I also congratulate the authors for the scientific and meticulous approach undertaken. 

This research study covers an intriguing subject that is presented logically and persuasively. In my opinion, the authors has made a good effort trying to get this subject, incendiary in the current economic climate, out of the fog. The research idea is very welcome; such studies facilitate the creation of a base for the launch of new ideas that are much better founded.

The only suggestion I will make refers to the part of conclusions that seems very laconic to me. Perhaps a discussion started in the body of the study that would give some answers to some questions, would facilitate obtaining deeper conclusions, according to the research done.

Some suggestions:

1) is solidarity towards the needy a duty rather than a voluntary expression of generosity?

2) in a free economy, when and to what extent should one's luck (windfall profits) be subject to (fiscal) punishment?;

3) if the fortunate deserve punishment, does it follow that the unlucky should be rewarded? If so, how do we decide what luck deserves to be punished and what bad luck deserves to be rewarded? 

Etc.

So, after reviewing this paper, I think the research is useful and suitable for publication. Also, I believe that the research effort was beneficial, and I urge the authors to continue this effort, fleshing it out in future research.

Author Response

Esteemed colleague, 

I’d like, first of all, to express my gratitude for the time you spend reviewing the paper, and for the insightful comments you shared with me. 

As you may see I tried to answer in the paper in the best way possible: I hope our work would match your expectations fully now.

I tried and adjust my conclusions in the attempt to foresee the future developments of windfall taxation, but as a matter of fact it turned out that we have written this article on shifting sands: while we were typing these lines the Government of my country had introduced a new windfall tax (although on a different tax base) and then repealed it. Rumor has it that they are mulling something else right now.

We understand there's a lot of uncertainties on the matter, yet our conclusions seem to be confirmed. A tax that was designed to be “one off” apparently is “here to stay” now.

The point you raise in terms of solidarity (a duty or voluntary expression ?) is most definitely intriguing. 

I believe that a lot (if not all) depends on the constitutional principles of the legal system we try to answer the question to. In our country it is a duty for sure, but we are perfectly aware we can not generalize, as in other countries the sensitivity towards those who are in actual need might be different, depending as it is on several factors of historic, social and political nature.

Being just lawyers we acknowledge we haven't got perhaps the appropriate cultural toolkit to address all these aspects, but most definitely It’s a research journey we’d like to embark on.

The “punitive” nature (or not) of windfall taxation is another aspect that is most definitely depending on this. We’d say that in the tax system we are most familiar with it would not be a “punishment”, but rather a “feature”. However, once again we acknowledge the fact that the conclusion might differ according to the point of view chosen.

Yours sincerely,

Reviewer 2 Report

I would like to thank the author for an easy-to-read, logical, substanciated and comprehensive overview of the recent EU development taken in the light of comparable national experience. My only remark is that the reference base can be a bit strengthened.

The text is to be edited, e.g. lines 68-71, 87.

Author Response

Esteemed colleague, 

I’d like, first of all, to express my gratitude for the time you spend reviewing the paper, and for the insightful comments you have left. 

As you may see I tried to answer the paper in the best way possible: I hope our work would match fully your expectations now.

In particular I tried to add more updated references to my bibliography in order to correct the weakness you have pointed out, and of course I have edited the part you underlined. 

All the variations to my first version are in red.

Yours sincerely,

Reviewer 3 Report

Brief Summary: This paper assesses the EU Windfall Profits Tax for the energy sector. This is an important and timely paper which engages with the theory and politics behind the taxation and practical concerns ast to its legislative application in European jurisdictions and beyond.  The article raises appropriate concerns with hastily imposed regulation in terms of the complexity, scope for inconsistency and constitutional appeal using Italy as a case study. The authors also, usefully, compare and contrast the EU tax with the Australian Petroleum Rent Resources Tax which has existed for several decades.

General concept comments: In general I really enjoyed reading this article and found it very interesting and original. There were a few areas of the article which might have benefitted from more detailed referencing and analysis but, in general, it was well researched and referenced. I thought it made an excellent contribution to the literature exploring the pitfalls of hasty tax regulation in an EU context and the risks this imposed for domestic jurisdictions seeking to implement the tax. The idea that better thought out regulation would be helpful is not new but this was an excellent case study in where and how legislating on the fly can go wrong both at the EU level and the domestic level (where the EU regulation provides insufficient specificity- as in this case).

Specific Comments: The first part of the paper is largely descriptive and, while this is very helpful for contextualising the paper, the article might be improved by a more lengthy exposition of the hypothesis at the beginning.  On the other hand, I was confused by the argument in Lines 430-440 which suggested tax was a one off. The authors finally confirm in Line 592 that it was intended for one year only. This needs to be set out at the beginning of the article.  Nothing prior to Line 430 indicated tax was for single year only which made it difficult to see how Transfer pricing wasn’t relevant to arrangements going forward. At some point in the article (possibly the conclusion) the authors then need to clarify whether this 1 year is being adopted by countries such as Belgium and Italy or whether they are imposing an annual (or regular) tax before that final conclusion that countries might not let it go (at Line 596).

There are numerous footnote reference numbers but also many in text citations and it is not clear whether both are required or in which circumstances one is chosen over the other.

The Australian section (Line 198) is very brief. It might perhaps be worth mentioning the numerous attempts since 2010 to introduce an additional super profits tax (or equivalent windfall tax) on Australia’s Oil and Gas sector. [eg Document-6-3.pdf (treasury.gov.au)].

I’m not sure that I agree (Line 248-254) that there is an intrinsic fallacy in selecting only limited areas for windfall taxation using social justice and fairness as a justification. I would need more evidence to persuade me that the basis was the Eastern war. Oil and Gas and pharmaceuticals both have strong social justice implication which could justify their choice as areas attracting special rules.

I would have liked more information regarding how the double tax agreements might be utilised to prevent the Windfall tax being effective for MNEs from Australia (Line 400-413). Is this said to be due to possible interaction with Australia’s PRRT or could this problem arise with other non-EU jurisdictions eg USA?

One wonders whether the periods of time in question (in Lines 469-474) might also be influenced by COVID lockdowns causing skewed data for taxation purposes.

Some authority in support of Lines 540-550 would be helpful.

It is odd having a basic definition of arms-length pricing in Lines 566-575 when the concept of transfer pricing was introduced earlier in the article (Line 414) with no such explanation.

If I’m understanding Line 580-583 correctly: such an approach would also have the advantage of ensuring the pricing relief was passed on to customers directly reducing cost of living crises.

In general, the English was very good but there were some minor infelicities of expression and/or typographical errors. Where I observed these, I have listed them below to assist the authors in rectification. 

Typographical and minor specific errors/ suggestions where wording effected meaning adversely: 

Line 16 insert “be” before “disregarded”

Line 26 insert “of needing” before “to address”

Line 29 “originating” not “originated”

Line 56 “justification for” not “justification to”

Line 68 “In both,” insert comma

Line 112 change “pad” to “paid”

Line 113 replace “the cause mitigation” with “mitigate”

Line 118 “solar year” is not a term used in reviewer’s country.

Line 126 “the international” what? “economy” maybe.

Line 134 “was” not “as” necessary

Line 152 “of” not “f”

Line 156-158 “proviso paragraphs”. Do author(s) mean “introductory paragraphs”? I’m not sure the article has really given much background on the history or breadth of Windfall taxes around the world up to that point. Just a few mentions mostly of the 2022 tax the subject of the article.

Line 165: I think Australia is “example” not “benchmark”

Line 170: reference is very old

Line 174: It is odd that there are mostly in text citations but some footnotes (eg 3)

Line 175: word missing after “commonwealth” perhaps insert “asset”

Line 189: Footnote/citation required for this. It is arguable and there are certainly scholars who support this statement.

Line 210-2019: Footnote 4-7 not clear why some footnotes and some in text citation.

Line 221: should be “due to the need for” not “as the need for”

Line 230-239: Add citations to relevant provisions.

Line 241: Profits are received or earned rather than incurred.

Line 280: It may well be unclear but I don’t think it is “secret”

Line 298: “9” why is this a footnote when most author refs are in text citation?

Line 324: reference in support here please.

Line 362: “ended into” maybe should be “resulted in”

Line 389: “some sort or progressive taxation” unclear meaning. Maybe delete “some sort or”

Line 398: replace “has also got” with “also has”

Line 421: “only insofar as a provision” missing “as”

Line 532: “might nor mirror” should be “might not mirror”

Line 566: “the nineties of the last centuries” change to “the 1990s” or at least change "centuries" to “century”

Author Response

Esteemed colleague, 

I’d like, first of all, to express my gratitude for the time you spend reviewing the paper, line-by-line, and for the insightful comments you have left. 

As you may see I tried to answer the paper in the best way possible: I hope our work would match fully your expectations now.

In particular I have addressed all your specific observations: you may see the variations to the first version of the paper in red.

I have anticipated the clarification of “transfer pricing” in order to facilitate the understanding of the chapter you pinpointed.

Actually, only 12 big MNEs are targeted by the Australian Petroleum tax; in this respect the fee does not raise significant issues regarding the application of international tax treaties. The scenario might be different in Europe where the “one-shot” Windfall tax tax could actually target non-European businesses operating in the old continent via a branch or a permanent establishment. This is however just a hypothesis, as I have no first hand experience in such a business sector.

You have observed a general weakness in my bibliography and suggested to improve it in some specific point. 

In this respect, I have added other references both in the bibliography and in the text. All of them are noted in red.

Eventually, you raised a point on my (sometimes) incoherent use of footnotes. You are absolutely right. The point is that this is the first article I am (hopefully) publishing in this review, and I was uncertain as to the proper way to cite my sources, striking a balance between the need of completeness on one side and an easy to read text. I have transferred nearly all of them in the text now, leaving only on one footnote.

Yours truly,

Round 2

Reviewer 1 Report

After reviewing this scientific paper, I believe it can be published in its current form. Congratulations to the authors for their research effort.

Reviewer 2 Report

I would like to thank the author for a promt elaboration following the comments received. I am satisfied with the improvements.