A progressive excess profit tax for the European Union

Executive Summary • This report proposes a new progressive excess profit tax (PEPT) for the European Union. Our proposal taxes excess profits at: • an additional 20% rate for ‘base’ excess profits – profits between a rate of return of 10% and 15% • and an additional 40% rate for ‘super’ excess profits – profits above a rate of return of 15% • This PEPT design would raise an additional €126 billion in 2022 on top of existing corporate tax revenues. This is equivalent to roughly 0.8% of the EU’s GDP or about 1.6% of total government expenditure by EU member states. This translates to €280 for every EU citizen. • EU member states could levy the PEPT as they have the necessary tools, information and legal authority to collect taxes, with coordination at the European level. • Our proposal limits tax avoidance: firms are taxed based on where they generate sales, not where they are legally registered, limiting their ability to shift profits to low-tax jurisdictions to avoid the tax. • Our proposal should not reduce investment as firms can still make 10% returns on their assets without facing any extra taxes. • Even if global coordination is not possible, we show that a PEPT can be unilaterally implemented by the EU.