Five EU governments have asked the European Commission to tax extra profits that oil and gas firms are booking after the Middle East war pushed global energy prices higher. Portugal is among the countries pushing a new windfall tax that would target extraordinary earnings and could mirror a 2022 EU framework that imposed a 33% minimum levy on excess oil and gas profits. Ministers want Brussels to also consider whether profits earned abroad can be included. The move aims to raise revenue for household support and relieve pressure on public budgets as bills rise.

EU finance ministers from Austria, Germany, Italy, Portugal and Spain sent a joint letter asking Brussels to act. They told the Commission to revive the approach used after Russia's 2022 invasion of Ukraine. That earlier rule hit oil and gas profits that exceeded the four-year average by more than 20 percent with a 33 percent minimum tax.

Portugal is preparing a domestic proposal that follows that logic.

What the proposal would target

Portuguese authorities want a tax on extraordinary profits at energy firms. The plan would focus on gains tied to the recent supply shock rather than normal business returns. Policymakers say the tax could fund subsidies and help households cope with higher bills.

Ministers who signed the EU letter also asked the Commission to check if it can tax multinational oil companies' profits earned abroad. They made that point while arguing for a single EU response, saying members must act together to keep consumer confidence.

The letter noted sharp gains at several producers. Published accounts and press reports indicated French firm TotalEnergies made roughly $1 billion in profits after buying Middle Eastern crude in the first days of the war. North Sea producers such as BP and Equinor also saw share gains as Brent crude spiked.

How it links to the 2022 rules

The earlier EU measure set a template. It applied a minimum 33 percent charge to oil and gas profits that rose well above recent averages.

That levy was framed as temporary and aimed at easing public finances while shielding consumers.

European officials say that approach could be reused now. Economy Commissioner Valdis Dombrovskis acknowledged after a meeting of finance ministers that the "scale, severity and impact" of the new war had intensified and that a "coherent set of policy measures" was needed to address rising prices.

Mastheads

If Brussels drafts a proposal, national capitals would still need to approve it. The 2022 windfall levies moved through with a qualified majority rather than unanimity. That makes a repeat path politically doable if governments align.

Portugal's domestic discussions reflect wider EU pressure to show action. Several member states have argued extra profits generated by external shocks should be partially redistributed to struggling households. Lawmakers and tax officials in some capitals are urging quick action to prevent public anger as energy bills climb.

At the same time, analysts and policymakers warn that heavier taxation can change companies' incentives. The proposed measures aim to target only exceptional gains, but they could still affect investment plans, especially in renewable projects and infrastructure that require long-term certainty.

Portugal faces the trade-off directly. The government wants new revenue to support vulnerable households and to shore up public finances. And it also needs to avoid measures that might deter new capacity that helps decouple the country from volatile global fossil fuel markets.

From a fiscal perspective, a windfall tax would bring in extra receipts during a period of elevated energy prices. Those funds can be used for direct subsidies, bill relief, or to reduce deficits.

But the revenue is tied to volatile market conditions. That makes planning for long-term spending harder.

Political dynamics will shape the final design. Left-leaning lawmakers in several EU capitals have pushed for redistribution. Some conservative leaders favor targeted relief rather than broad levies. The Commission's legal assessment of taxing overseas profits will also matter for multinational companies' exposure.

For Portugal, timing matters. Citizens are already facing higher household energy costs. Policymakers want measures that show immediate relief while preserving investment climate for future energy projects.

Any EU-level proposal would set the parameters. National parliaments would then adapt rules to local fiscal and market conditions. That two-step process is how the 2022 levies were implemented and could repeat now.

What changes is clear: governments are moving from talk to concrete tax proposals. And those proposals aim to capture gains tied to the war-driven supply shock, not routine profits from long-term operations.

That distinction will shape how firms, investors and voters respond.

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If Brussels drafts a proposal, national capitals would still have to approve it, likely by qualified majority rather than unanimity.

This article was created with AI assistance.