Six states seek refinery windfall tax

Six EU finance ministers want Brussels to reopen the question of windfall taxes on oil companies, after refinery profits widened while drivers kept paying heavily at the pump. Germany, Italy, Austria, Poland, Portugal and Spain have signed a joint letter to Ireland, which currently holds the rotating EU Council presidency, asking for the issue to be put on the agenda at an upcoming finance ministers' meeting in Dublin (Business Recorder/AFP, DW).

The letter was initiated by Germany's Lars Klingbeil. Its argument is simple enough: oil companies are making profits, and refinery margins, that have risen faster than crude prices themselves (Les Echos, n-tv). For Maltese drivers, the distinction matters. A ministerial letter can start a political argument, but it does not yet create a tax.

Why six ministers cannot make a tax

EU tax law is one of the areas where small states still hold a real veto. Measures need unanimity: all 27 governments must agree, after the European Commission first tables a formal proposal (Article 113 TFEU, Article 115 TFEU). One government can block the whole thing. There is no Commission proposal, and no draft legal text has emerged (Council decision-making).

The six governments do have a precedent to point to. In 2022, the EU adopted a temporary "solidarity contribution" under Regulation 2022/1854. It required member states to take at least 33% of fossil-fuel companies' taxable profits above a benchmark set 20% higher than their average over the previous four years. The levy covered surplus profits in crude oil, natural gas, coal and refining. It was not a tax added to every litre of fuel. The current letter reportedly asks ministers to use that model again.

The tax case starts inside the refinery

Refining margins are the difference between the price of crude oil and the price of the petrol or diesel produced from it. When those margins grow, fuel becomes more expensive before it reaches the pump. An ECB analysis found precisely that pattern during the recent price shock (ECB).

Bank Austria estimated that Austrian fuel prices in July would have been about 10 cents per litre lower without the widening in margins (Leadersnet). Barclays put European refining margins at five to six times their normal level, naming Austria's OMV among the companies benefiting (Investing.com). Refiners can therefore earn more even when crude oil is not rising as quickly as fuel prices.

The redistribution is clear. Drivers lose when margins widen. Oil companies and their shareholders gain. TotalEnergies bought back nearly 1.6 million shares for about €120 million over five trading days in mid-August (ZoneBourse). Governments gain only if the levy survives politically and legally. Drivers benefit only if the design stops companies from recovering the tax through higher wholesale prices.

Some signatories are already acting alone

Portugal has approved a temporary 33% solidarity contribution on 2026 oil-sector profits above a baseline, borrowing directly from the 2022 EU design (Xinhua, Jornal Economico). Poland tried a harder version: a 60% levy on extraordinary fuel-sales profits, expected to raise around 4 billion zloty and cover 20 to 30 companies, including state-controlled Orlen. President Nawrocki blocked it and sent it to the Constitutional Tribunal. Warsaw is now looking at another route: temporarily raising corporate tax for large energy companies to 30% in 2027 (Money.pl, Polsat News).

France, the home of TotalEnergies, is the obvious absence from the letter. Paris already has a broader surtax on large-company profits, covering about 300 firms and reportedly raising €7.3 billion this year (TF1 Info). It is willing to tax large companies, but has not joined a targeted oil levy that would point partly at its own national champion.

Would drivers actually pay less?

A surplus-profits tax is calculated after the accounting period and applies only to profits above a benchmark. It is not automatically added to each litre in the way an excise duty is. Polish economists made that point when challenging the president's claim that the levy would appear directly at the pump (Radio ZET).

That does not mean drivers are protected. Companies with pricing power can rebuild their margins through wholesale prices. Austria's experience with a pump-price cap showed how firms can offset an intervention through timing and price rises before implementation (trend).

The case for a levy is not imaginary. ECB and market data show refining margins have widened beyond what crude prices alone explain, while several oil companies are returning cash to shareholders. But the policy is still only an argument. Six ministers do not equal 27 unanimous votes, no legal text says who would pay or how much, and the pass-through problem remains unsolved.