Has the Time Come for Excess Profit Taxes?

Shafik Hebous

Key Messages

  • There is a case for taxing economic rent, beyond windfall profits from fossil fuel extraction following the surge in commodity prices.
  • Permanent excess profit taxes (EPTs) can be designed to fall on economic rent and to serve as a gateway for an efficient tax system.
  • While temporary taxes on windfall profits raise revenues, they do not address structural deficiencies in the tax system and are generally less desirable than permanent well-designed EPTs.
  • There are parallels between a coordinated excess profit tax on the profits of multinationals (that ultimately becomes a formulary apportionment) and the destination-based taxation envisaged under Pillar I in the 2021 Inclusive Framework agreement.

Excess profit taxes (EPTs) emerge as an option to contribute to the extra needed revenues, avoiding a general increase in corporate tax rates, while having the prospect to serve as a gateway to converge toward a permanent efficient rent tax instaed of the corporate income tax. General unilateral (temporary or permanent) EPTs would face the same international pressures from profit shifting and tax competition as the existing corporate income tax, calling for international coordination. A coordinated EPT on multinational enterprises can take the form of a formulary apportionment approach that allocates the EPT base using sales by destination.


Shafik Hebous: “Has the Time Come for Excess Profit Taxes?,” EconPol Policy Brief 49, March 2023.