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The solidarity contribution proposed by the European Commission, which will be levied on “surplus taxable profits” of European oil and gas companies will only have a limited impact on the Fitch-rated portfolio.
The funds from operations (FFO) net leverage metric of PKN ORLEN, Repsol and OMV are likely to be most affected, followed by those of TotalEnergies and CEPSA. However, we estimate the impact to be limited to 0.3x with net leverage of all affected companies remaining comfortably within our rating sensitivities for their current ratings as these companies are generating healthy cash flows in the current high energy price environment.
According to the EC’s proposal, the temporarily solidarity contribution will be levied over “surplus taxable profits” of companies and permanent establishments that are tax resident in the EU and operate in the oil, gas, coal and refinery sectors. To determine “surplus profits”, EU states will use the taxable profits, as determined under their national corporate income tax rules, of in-scope activities in the fiscal year starting from 1 January 2022, which are in excess of a 20% increase of the average taxable profits of the three fiscal years from 1 January 2019.
EU member states will be free to choose their own tax rate subject to a minimum of 33%. We also understand that the proposal restricts the scope for the contribution calculations to operations based in the EU.
As well as the above-mentioned companies, Fitch estimates the impact on Wintershall DEA and Eni to be immaterial as their operations are mainly outside the EU. Hungary’s MOL is already subject to domestic windfall taxes and a cap on fuel prices so we expect the impact of any additional measures to be more limited than the measures already in place.
As the proposal could be subject to changes before it is enacted as a law, we will reassess the impact as more information becomes available.
Source: Fitch Ratings
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