US oil giant ExxonMobil has challenged the European Commission’s proposal to levy excess profits from EU-based oil and gas companies before the EU General Court, the company said on Wednesday.
The lawsuit — brought through subsidiaries in Germany and the Netherlands — argues that the measure is a tax, which is a right reserved to national governments, and challenges the use of Article 122 of the EU Treaty, an emergency procedure that excludes the European Parliament, to enact legislation.
Under Article 122, the Commission initiates a legislative proposal, but it is the Council that adopts the measure by a qualified majority of EU member states.
“Our subsidiaries, ExxonMobil Producing Netherlands BV and Mobil Erdgas-Erdöl GmbH, are suing the European Council in an attempt to reverse a new windfall tax on oil and gas companies,” said Casey Norton, spokesperson for ExxonMobil in Texas. .
EU countries adopted a package of emergency legislation in September aimed at tackling soaring energy prices. It included a temporary minimum tax of 33% – dubbed a “solitary contribution” – on profits of fossil fuel and refining companies that exceed a four-year historical average by 20%. The profits concerned could come from the 2022 or 2023 financial years, depending on the country.
“This litigation is prompted by our concern about the unintended long-term effects of this policy on the competitiveness of European industry,” the spokesperson said by email. “This tax will undermine investor confidence, discourage investment and increase dependence on imported energy and petroleum products.”
The lawsuit does not prevent the legislation from taking effect – and with no time limit given to the court to decide the case, it could be years before a judgment is delivered.
The legislative package in question also includes taxes called “revenue limits” for electricity producers and financial relief for certain retail consumers.
“We recognize that Europe’s energy crisis is taking a heavy toll on families and businesses, and we have been working to increase Europe’s energy supply,” Norton said. “Our challenge is only against the counterproductive windfall tax, and not any other part of the package to reduce energy prices.”
The case concerns one of the first cases of the EU using emergency Article 122 for energy legislation, which could make it a test case.
“The windfall tax will not address any energy supply shortages and cannot have a realistic impact in a timely manner, so the European Commission and Council were wrong to use windfall powers under the 122(1) TFEU to expedite its approval,” Norton added.
EU countries have also used the emergency procedure to impose minimum levels of natural gas storage, reductions in winter electricity and gas consumption, the joint purchase of gas supply and a cap maximum on wholesale natural gas prices within the block.
“ExxonMobil has been one of the biggest investors in European refining over the past decade, investing more than $3 billion in major refining projects,” Norton said, adding that “the future [multibillion-euro] investment in Europe’s energy supply and transition “would depend “on Europe’s attractiveness and global competitiveness”, and warns European lawmakers to stick to “a thoughtful policy … a when Europe is struggling to reduce its energy imports from Russia”.
Neither the European Council nor the Commission responded to a request for comment.
Sarah Wheaton and Aoife White contributed reporting.