Spanish windfall tax takes heavy toll as oil group Cepsa reports loss

Spain’s €3bn windfall tax is erasing a big chunk of profits at companies with the least global presence, pushing oil group Cepsa into a loss and tarnishing the results of CaixaBank.

The Socialist-led government’s tax on big banks and energy groups, which are challenging the levy in the courts, is applied not on profits but on revenues and only to the Spanish operations of companies based in Spain.

Cepsa, Spain’s second biggest oil group, said on Friday it had taken a €323mn charge for its 2023 windfall tax bill, wiping out all its profits and leaving it with a €297mn net loss in the first quarter.

CaixaBank, Spain’s biggest lender by deposits, said the windfall tax cost it €373mn, equivalent to 44 per cent of the €855mn net profit it reported for the three months to March.

Because both companies do most of their business in Spain, the tax bills were far higher relative to profits than those of Spanish multinationals such as Santander and Iberdrola, which have large operations elsewhere in Europe and Latin America.

“The fact that the extraordinary tax imposed on Spanish energy companies pushed Cepsa into a . . . loss in the first quarter illustrates its poor design and disproportionate impact — more than double the impact on our main competitors in proportion to net income,” said Maarten Wetselaar, the company’s chief executive.

Windfall taxes for 2023 have been calculated based on the companies’ 2022 results.

Renewable energy group Iberdrola, which has called the tax “arbitrary and discriminatory”, paid out €216mn, about 15 per cent of its quarterly earnings. Repsol, Spain’s biggest oil group, has been hit by a €450mn bill, 40 per cent of first-quarter earnings.

In the banking sector, Santander’s bill was €224mn, equivalent to 9 per cent of its first-quarter profits, while BBVA’s €225mn was equal to 12 per cent.

The proportion was much higher at Sabadell, which owns British bank TSB but has the bulk of its business in Spain. Its windfall tax bill for 2023 was €157mn, or 77 per cent of its first-quarter profit.

The Spanish tax, which came into force in January at the start of an election year, is a signature part of Prime Minister Pedro Sánchez’s response to the cost of living crisis.

The government, which insists companies must do more for society, argues that banks are making “extraordinary” profits from rising interest rates and that energy groups have enjoyed excessive gains from the high price of gas and electricity since Russia’s invasion of Ukraine.

It is using the tax revenues to fund measures to alleviate the impact of inflation, including subsidies for fuel and public transport. The finance ministry said in February it was on track to raise €3bn this year, in line with its estimates, which would help “prevent the middle and working classes from bearing the full brunt of the crisis”.

Gonzalo Gortázar, chief executive of CaixaBank, said last year that the tax was “counterproductive because in an economic slowdown we need a strong banking sector”.

Most of the affected companies have already launched appeals against the tax at Spain’s National High Court and challenged it directly at Spain’s tax agency after making their first payments.

For Spain’s biggest banks, the tax is a levy of 4.8 per cent on their income from interest and commissions, payable in 2023 and 2024. Large energy companies have to pay a 1.2 per cent levy on their revenues.

Ignacio Galán, Iberdrola chair, has said it was wrong to target electricity generators and not just gas companies and complained its formula means businesses would have to pay even if they were losing money.

Ana Botín, Santander’s executive chair, has said any tax increases “should be the same for all companies”. She has also argued that rising profits are a sign of a return to normal business conditions for banks.