OEUK: Calls for UK windfall tax on oil & gas player’s global profits ‘deliberately misleading’

The release of BP and Shell’s profits announcements gave rise to calls for windfall taxes on energy producers’ global profits from opposition politicians and union leaders. In response to this, the UK’s representative body for the offshore energy industry, Offshore Energies UK (OEUK), has warned that these calls for new windfall taxes on global profits are misleading.

Energy companies have recorded all-time high profits in 2022 due to high energy prices, increased demand for oil and gas production and tight supply. This was also seen in the profits announcements from Shell and BP. These announcements caused outrage among those who opted to call for a new windfall tax.

Shell recorded the highest-ever profit on a year-on-year basis last year, reaching nearly $40 billion, which is more than double the firm’s full-year 2021 profit of $19.29 billion. After releasing its results, the oil major’s headquarters were targeted by Greenpeace activists, who set up a huge, mock petrol station price board outside the company’s London HQ.

At the time, Greenpeace said that Shell had funnelled billions back into shareholder pockets in the form of buybacks, instead of investing its profits back into “clean, cheap renewable power which could alleviate bills, shore up UK energy security, and ease the climate crisis.”

On the other hand, BP more than doubled its annual profit in 2022, which put the oil major firmly on environmentalists’ hit list. Global Witness, an international NGO, says that BP’s record 2022 profit, which represents a 116 per cent jump over 2021 profits, could pay this year’s energy bills for a full third of all UK households.

In addition, the NGO further adds that BP’s profits could cover £10 billion that the government claims would be needed to give NHS nurses – who today have continued their efforts on the picket lines – the pay raises they demand, and still leave the company nearly £13 billion.

In response to the calls for a new windfall tax on energy producers’ global profits, Offshore Energies UK – former Oil & Gas UK (OGUK) –  said such a levy risked breaching global tax agreements and so could never be implemented. For global oil and gas producers, UK operations will typically be just a fraction of their overall portfolio – probably less than 10 per cent for the UK majors.

Commenting on this, Mike Tholen, OEUK’s director of sustainability, said it was wrong to offer false hopes to hard-pressed consumers, adding: “These calls for an increase in the UK windfall tax, linked to the global profits of energy producers, are deliberately misleading. The UK is subject to global tax agreements which say that it cannot tax profits made by companies outside of the UK. That means such a tax could never be implemented. It is irresponsible to pretend otherwise.

“Companies operating within the UK already face a 75 per cent windfall tax on profits made in UK waters – the highest for any industry. That means the UK government is actually the biggest beneficiary of the high prices generated by the Ukraine conflict.”

Tholen further emphasises that the “rate of UK tax is already so high it risks driving companies out of UK waters. All parties have acknowledged that we will need oil and gas for decades to come, so why risk damaging our own secure supplies from the North Sea?

“That will reduce production, undermine the UK’s energy security, destroy jobs and ironically, drive down tax revenues. It will also damage the skilled workforce needed to drive the transition to low carbon energies.”

In a bid to address a common confusion regarding the relationship between global profits and UK taxation, which arises from the assumption that profits from global operations are subject to UK taxes, OEUK clarified that this assumption is incorrect and explained that the relevant UK taxes – Corporation Tax, Supplementary Charge and the EPL – apply only to energy producers’ profits made on oil and gas extracted in UK waters.

The combined rate of these taxes is 75 per cent, which, according to OEUK, is the highest rate for any UK sector. These UK taxes will apply to profit earned by foreign-owned companies operating in UK waters, however, they will not apply to profit earned by subsidiaries of UK companies operating overseas.

“The key point here is that multinationals like Shell and BP are not single companies but groups, with multiple overseas subsidiaries. Most of their profits are made in other countries which is also where those profits are taxed. The UK cannot then impose a second tax just because the group has its headquarters in the UK. If we did, they would all leave,” added Tholen.

“It would also be invidious for the UK to tax profits made in other countries. The taxes on those revenues belong to the countries where they were generated. It would be wrong for another country’s revenues to be effectively seized by the UK. Our industry wants to work with politicians of all parties to build the UK’s low-carbon energy future. We need long-term energy policy plus fiscal and regulatory stability if we are to achieve net zero,” concluded Tholen.