January 29, 2023

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Exxon is suing the European Union in a move to block a new dividend tax on oil companies

ExxonMobil is suing the European Union in an attempt to force it to cancel the unexpected new tax that the union imposed on oil groups, arguing that Brussels exceeded its legal authority by imposing the tax.

The lawsuit is the most significant response yet to the tax on the oil industry, which Western governments have targeted amid a surge in energy prices after Russia. Ukraine invasion. The measure threatens the viability of a tax that the European Commission said would raise 25 billion euros “to help lower energy bills”.

Exxon said the lawsuit was filed on Wednesday by its German and Dutch subsidiaries in the European General Court in Luxembourg City. It challenges the Council of the EU’s legal authority to impose the new tax – a power historically reserved for sovereign states – and its use of emergency powers to secure member states’ approval of the measure.

Casey Norton, a spokesman for Exxon, said the US giant recognized that high energy costs were “weighing on families and businesses,” but argued that the tax was “counterproductive” and “undermines investor confidence, discourages investment and increases reliance on imported energy.”

Norton said Exxon has spent $3 billion on European refining projects in the past 10 years, increasing production “at a time when Europe is struggling to reduce its energy imports from Russia.”

Norton added that Exxon is now considering “future investments worth billions of euros” in the continent. “Whether we invest here depends mainly on how attractive and globally competitive Europe is.”

The alleged solidarity contribution was one of several measures agreed by the council in September to ease the burden on energy consumers, while raising money to recycle it for hard-hit consumers or invest it in clean energy supplies.

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Other measures It included a cap on revenue from low-cost power generation. Norton said Exxon was not opposed to this.

The European General Court will decide whether to rule on Exxon’s lawsuit. If this happens, any future ruling can be appealed to the European Court of Justice. The proceedings may continue through most of next year.

The European Commission is the executive branch of the European Union, and has the power to propose legislation. The Council is the intergovernmental arm of the European Union, where representatives of the 27 member states discuss and approve legislation.

The European Commission said it “takes note” of Exxon’s legal request and added that “it is now up to the General Court to decide this case”.

It also said it “confirms that the measures in question are fully compatible with EU law” and that the solidarity contribution “will ensure that the entire energy sector pays its fair share in these difficult times”.

The new tax is set to take effect from Dec. 31 and will tax at least 33 percent on any taxable earnings in 2022-23 that are 20 percent or more above average earnings between 2018 and 2021.

Exxonone of Europe’s largest oil suppliers, indicated in a filing in November that its tax liabilities under the new solidarity tax could reach $2 billion through the end of 2023. The company posted a record global profit of nearly $20 billion in the third quarter.

Brussels has regularly used emergency powers granted in Article 122 of the Treaty on the Functioning of the European Union during the energy crisis. The article states that “in a spirit of solidarity” member states may approve legislation directly from the Commission, circumventing the European Parliament, “in particular if severe difficulties arise in the supply of certain products, particularly in the field of energy.”

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Exxon’s lawsuit argues that the unexpected tax would not remedy any energy supply shortages, and so the commission and board erred in using emergency powers to secure its approval by a majority vote rather than a unanimous vote.

The European Parliament has protested the Commission’s repeated use of Article 122, saying it undermines the democratic process even if laws would have taken longer to pass with its participation.

Soaring oil company profits this year have rattled Western governments, which have come under pressure as soaring fuel prices have fueled rampant inflation and threatened to tip economies into recession.

The UK followed the European Union tax in November, which raised its surprise tax on oil and gas producers from 25 percent to 35 percent and extended it until 2028. The move angered domestic producers, who said the measure would threaten future investment.

The windfall tax has also been challenged in Italy where a court last month raised a claim brought by ERG, a wind power company. Spanish oil and gas group Cepsa has also threatened to sue Madrid over a similar tax on the Iberian Peninsula.

Activists echoed this accusation. Agathe Bonnefort, oil officer with the NGO Transport and Environment, called Exxon’s suit an “attempt at intimidation” and said oil and gas companies had engaged in “blatant profiteering” during the crisis.

Additional reporting by Henry Foy and Alice Hancock