The evolving nature of windfall taxation: an interim measure for a broken corporate tax?

Abstract After COVID-19 and the Russian invasion of Ukraine, many countries levied windfall taxes on specific sectors that obtained abnormal levels of profitability (e.g. banking, energy, food distribution). Windfall taxation is evolving from the traditional taxing of unearned profit due to luck (i.e. extraordinary profit due to interest rate rise) to taxing profits derived from unsustainable practices (i.e. profit-shifting in Pillar Two). Such a shift reveals the profound crisis of corporate income tax on tax business profit and places windfall taxation as an interim solution to collect tax revenue. This need to collect revenue complicates and renders incoherent the legal design of windfall taxes (in-scope rules, taxable base and tax rate) under the ability to pay and equality principle. To prevent creating a tax on general income, the legislator struggles to single out the industries subject to the tax, calculate the taxable base (extraordinary profit) and determine a tax rate. Such tensions reveal the difficulties of drawing lines in taxing business profits and suggest the need for a fully fledged reform of corporate taxation.