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The EU Left Suggests a €100 Billion Windfall Tax on Monopolies

Posted on May 16, 2024

A new study by the European Left estimates that a permanent tax on excessive profitability of near-monopolies would raise between €81 billion and €107 billion.

“With a windfall profits tax on the undeserved monopoly gains of powerful corporations like Microsoft, Pfizer, or Goldman Sachs, we could easily plug the budget holes and fight poverty,” Marin Schirdewan, co-chair of the Left Group in the European Parliament, said in an email.

A tax on the 200 multinational corporations making excessive margins “would generate between €100 [billion] and €150 billion on a European scale, including over €20 billion in France,” Manon Aubry, the other co-chair of the Left, said.

The Left published a study advocating for a tax that would target not only exceptional profits made in times of crisis but structurally high profitability of near-monopolies. The study says that in many countries across various sectors, a few “huge companies control increasing shares of the market.” This phenomenon gives them increased corporate power but also profitability, which makes them grow even faster.

“Taxation is both a part of the problem — because the biggest and most profitable companies often reduce their tax rates most aggressively and successfully — and could be part of the solution,” the study says.

The study's analysis estimates the average tax rates paid by big tech (12.5 percent), big pharma (15.8 percent), and big banks (19.5 percent).

The study builds on pillar 1 of the OECD’s two-pillar global tax reform plan, which targets companies with revenue of more than €20 billion and a profitability greater than 10 percent. The Left’s study suggests expanding pillar 1 to encompass the extractive and financial industries for at least three years. This would affect 209 companies (as compared with the 106 companies that are in the scope of pillar 1). The study estimates that those 209 companies booked nearly €2 trillion of excess profits in 2022, particularly companies in the financial and extractive industries. “Excluding them — like the OECD Pillar One does — more than halves the excess profits captured,” the study says.

Out of the €2 trillion, about “€300 billion was ‘earned’ in the EU according to estimates based on different allocation keys,” the study says. With a progressive tax rate ranging from 20 to 40 percent on those excess profits, EU member states could raise €107 billion on top of existing corporate tax revenue. The study details that the 25 biggest oil companies would pay €24 billion on their excess profits, Microsoft €4 billion, LVMH €684 million, and Sanofi €307 million.

A 25 percent flat rate would result in a tax income of €81 billion per year for the EU, according to the study's calculations.

The study states that out of the 209 biggest and most profitable companies it identified, 65 were banks and financial companies. In 2022 the Czech Republic and Spain introduced a windfall tax on financial institutions, and in 2023 Italy did so as well.

“Caution must be taken to ensure that the extraordinary tax does not impact the ability of individual credit institutions to build strong capital bases and adequately provision for increased impairments and a deterioration in credit quality,” the European Central Bank said in a September 2023 opinion on the Italian tax.

“The ECB acknowledges the tendency of increasing net incomes when policy rates increase but points to offsetting effects later in the cycle and warns against weakening capital building,” the study says.

“Big corporations and their owners outrank most nation-states in terms of economic resources, and they drive inequality,” the study says. It estimates that the 209 most profitable companies employ more than 25 million people and earn €15 trillion in revenue. “That is more than the adult population in all EU member states except Germany, France, Spain, Italy and Poland and equals the EU’s GDP,” according to the study.

The Left believes this concentration of power endangers the functioning of free markets because those companies can outspend any competitor and grow even bigger. “And it endangers democracy because money buys power,” the study adds.

The study says that EU competition tools failed to address that situation, as large U.S. tech companies paid slightly more than €10 billion in EU competition fines in the last 20 years, “which is only approximately as much as the sum of their excess profits earned in the EU every year.”

Regulation can sometimes be the source of sustained excess profits, “like in the case of excessive patent protection in the pharma industry,” which “in most cases” results in high profitability, the study says.

“These powerful corporations have more money than entire countries, yet some of them pay lower tax rates than the local baker,” Schirdewan said. He added that those companies can afford to employ “armies of lobbyists to influence policies in their favor.” He believes it is time for politicians to take action, “limit the power of mega-corporations, and skim off the excess profits."

The study says that the “modest” excess profits tax it proposes won’t be enough to quickly change the current state of affairs that it warns against, but “will give people back their belief that democracy can make a difference.”

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