The over-profit tax is a potential tax that is currently experiencing a political discourse because many factors are currently in conjunction with each other. On the one hand, many companies in the energy industry benefit from the sharp increase in energy prices, so that their profits are significantly higher than average. On the other hand, many private households are losing the financing of their livelihoods bit by bit. This is why more and more people in Germany are demanding redistribution. For this reason, various parties cite the introduction of a so-called over-profit tax as an instrument for the redistribution of such disproportionately high profits due to the situation. Whether the over-profit tax is actually a promising and legally flawless innovation in every respect, can only reveal a glance at the details.

No topic has so stubbornly dominated the media and political discussion in recent weeks and months regarding any redistribution debates as the over-profit tax.

This discussion is anything but new. Since last year, the debate on the over-profit tax has been getting louder and louder. What lies behind the term over-profit tax and why this has just become part of the political debate landscape, clarifies this article.

In the current political debate landscape, the coalition committee has agreed on a third discharge package. It expresses, inter alia, the intention to collect over-profits of electricity-producing energy companies based in Germany in order to redistribute them under asset relief measures. It should be noted here that the introduction of an over-profit tax for oil companies is currently not a suitable measure, because only four large energy companies are based in Germany.

Looking at the historical development of the over-profit tax, one inevitably comes across the fact that since the introduction of modern personal taxes, such as income tax and corporate income tax, the idea and demand for an absorption of profits that exceed the average flares up whenever exceptional situations require special taxes.

In the past, in other European countries as well as in the United States, over-profit taxes were always an instrument when special crises made budgetary balance necessary. This was almost exclusively the case in times of war. Thus, states such as France, Britain and the United States imposed such a tax in both the First and Second World Wars. The collection of the over-profit tax varied very much between 50% and 95% in the individual countries due to the changing war situations. Initially, the collection of the over-profit tax was limited to companies in the arms industry. In the further progress of the war, each company based in the respective country was used for such a tax.

Probably the biggest factor and trigger of the political discussion is the current supply situation. This is accompanied by increased energy and food prices in Germany and worldwide. It seems unfair that many energy companies in industry and many other companies are making record profits, while many citizens here hardly know how to pay their electricity and gas bills. However, the resulting burden of inflation also affects many citizens with small and middle incomes. From a socio-political point of view, the question therefore arises as to how the existential fears about the Corona, energy and war crises can be alleviated in order to secure social cohesion and the foundations of democracy in this country.

Therefore, the idea of introducing an over-profit tax seems to be THE instrument to create a social balance. Many believe that justice is satisfied if the shareholders and companies of the energy companies are subject to a separate tax, while the citizens often remain on their own with the increased prices except for the federal government’s relief packages.

Under social pressure, political incentives and demands often arise. So also in this case. The over-profit tax is not a new issue in the political and party-political debate landscape. After the International Monetary Fund had already discussed such a tax for large companies such as Amazon in 2020 in times of Corona crisis, the left-wing group in the German Bundestag also called for the introduction of an over-profit tax in 2021.

In addition to social pressure, budgetary considerations also play a role. On the basis of various tax estimates, current data assume additional income before deduction of administrative costs of 80 – 100 billion euros.

The still ongoing Corona crisis, the Ukraine war in Europe since this year with its economic consequences, as well as the energy crisis triggered in part, make the voices for noticeable relief in society and politics increasingly louder. Now it must be noted that the state is also inevitably able to benefit from crises in fiscal policy. Be it with regard to the taxation of the pharmaceutical industry with its unexpected production of drugs and vaccines against corona or in the current situation with its tax participation in increased energy prices and inflation.

Tax and economic arguments are put forward against the introduction of an over-profit tax. Anyone who considers that the introduction of the over-profit tax is a mandatory measure to establish tax justice does not include the basic structure of tax law and also reveals economic miscalculations. Because within the framework of the social market economy system, tax policies are always those that force a company to raise prices and pass on taxes to the end consumer. Thus, at the end of the “chain” often the end users pay the additional burdens.

In addition, it is currently unclear how the implementation of such a tax should take place. Furthermore, with regard to the example of the over-profit tax from Italy, additional doubts arise as to whether the German Treasury would also receive all of the amount of the over-profit tax set.

In addition, constitutional concerns must also be considered. For a total burden or individual burden of companies in the context of an over-profit tax seems quite critical in this context. Where to draw the line? In addition, there is the highly probable recession. If one combines this with the record in the state tax revenue forecast in May 2022, one can confidently ask the question whether an over-profit tax is actually the best measure for relieving large parts of the German population.

In addition, the debate lacks consideration of practical implementation. The discussion on the over-profit tax does not include any of the problems relating to the timetable for transposition in the legislative process or transposition at the individual tax offices. An introduction in this assessment period is hardly expected. This also makes the consideration of 2021 problematic for constitutional reasons. The planned 80 – 100 billion euros are also likely to diminish after this administrative effort and the time implementation. The goal of using the over-profit tax for redistribution could therefore only prove realistic from next year. However, it remains to be seen whether the over-profit tax will have a positive effect after deduction of all administrative expenses due to the increased interest afterwards, in view of the balance between costs and benefits.

In European law, a distinction must be made between primary and secondary law. Secondary Union law covers, inter alia, decisions, directives and regulations of the EU.

European implementation of an over-profit tax is, however, currently difficult, even almost impossible. This is already shown by the long-planned project to introduce a global minimum taxation for the so-called GAFA companies. In the area of tax legislation within the European Union, unanimity by all Member States is required.

The EU Commission has issued an administrative regulation with a guideline in this regard, but this is by no means binding for the German legislature. However, according to an opinion of the scientific service of the German Bundestag of 22.07.2022 on this topic, there is a factual justification for the intervention in Article 3 of the GG with regard to the introduction of an over-profit tax.

Notwithstanding the legislative procedure of Articles 105 and 106 GG, it seems to be particularly problematic within the state whether the constitutional standard of the non-retroactivity principle would be maintained if an over-profit tax were introduced.

In principle, real repercussions are not allowed. This applies if an already incurred tax liability is subsequently amended. The assumption of a real retroactive effect seems to be remote at first glance, since the over-profit tax would be a new tax. On the second glance, however, it should be noted that an over-profit tax accesses exactly the additional acquisition that was already subject to income and corporate tax during the same period. This already existing tax burden – as in the case of a real retroactive effect – has developed a legitimate trust in the taxpayer that his acquisition will not be burdened with an increased or a completely new tax. The introduction of an over-profit tax must therefore be tantamount to a genuine retroactive effect. Furthermore, since there is no exceptional case-law recognised in which genuine retroactive effect is exceptionally permitted, the introduction of an over-profit tax would already be constitutionally inadmissible under the prohibition of retroactive effect.

In the statutory design of an over-profit tax, the requirements of the general principle of equal treatment and the prohibition of the throttling tax must also be sufficiently observed. A tax on over-profits should not be treated unequally for material reasons and should not have a stifling effect on the business activities of taxpayers.

7.1 View of scientific services on over-profit tax

7.1.1. Position of the scientific service of the Federal Ministry of Finance

The scientific advisory board of the BMF sees the over-profit tax as harmful for the national economy in the long term. The experts justify this, among other things, by the fact that the profit growth of companies resulting from the crises is difficult to determine and would be created by estimates arbitrariness, as well as distortions in practice. In addition, taxing over-profits would restrict companies in their investment opportunities. The companies could create capacity and reduce scarcity through the over-profits. Taxation of over-profits could also be a hindrance to innovation, according to the scientific advisory board, since companies would not participate ex ante in innovation races if they knew their progress was dwindling ex post by taxing over-profits. Finally, according to the BMF, the over-profit tax could create a problem of trust between the companies and the German tax system. Even the one-time introduction of the over-profit tax can always lead in future crises as a basis for the renewed debate on the introduction of an over-profit tax.

7.1.2. Position of the scientific services of the Bundestag

The scientific services of the Bundestag are more covered with a clear positioning in contrast to the BMF. Here it is mainly stated that the communication of the EU Commission is in principle non-binding. The scientific advisory board of the German Bundestag considers the introduction of an over-profit tax to be possible in principle, but here various prerequisites should be considered.

When introducing an over-profit tax, there are various constitutional and tax aspects to consider. Throughout the debate, it is important to note that a moral and ethical view must be discussed and examined strictly separately from a view of tax implementation. German tax law usually does not avail itself of a moral obligation, but rather a taxation according to the performance of the respective natural person, since a progression must be taken into account. Also in the case of a legal person, which is taxed at a uniform tax rate, the state participates.

The problem in this context is not whether the introduction of an over-profit tax would make sense for moral reasons, but rather whether this measure should be used in this situation. Because what should be considered when introducing such a tax is the fact that the introduction, like the sword of Damocles, hovers over future debates when other companies make similar profits in divergent crises.

So if you weigh the advantages against the disadvantages of introducing an over-profit tax, you inevitably come to the point that it is a juxtaposition of emotional-moral and purely legal standpoints. Leaving aside this, the question therefore arises as to whether the introduction of an over-profit tax is an appropriate measure to enable undertakings to tax their unexpectedly high profits, even if these are only due to external, unforeseen circumstances.