As the FT notes this morning:
The seven supermajors — including BP, Shell, ExxonMobil and Chevron — are poised to return $38bn to shareholders through buyback programmes this year, according to data from Bernstein Research. Investment bank RBC Capital Markets put the total figure higher, at $41bn. That would be almost double the $21bn in buybacks completed in 2014 — when oil last traded above $100 a barrel — and the biggest total since 2008.
This, as they add, is on top of $50bn of dividends.
In response, I ask a simple question to all those who say that we must not impose windfall taxes on these companies. It is this. How does a share buyback programme contribute to the supposed investment in the transition to a sustainable future which you argue is the reason for letting these companies keep these profits which they did nothing to earn since they have arisen through no consequence of any action of their own, unless rationing supply is considered a neutral act?
I happen to think a tax equivalent to all share bay backs and 50% of excess dividend payments compared to the average of the last decade would be a reasoanble basis for such a windfall charge. Let the oil companies decide their own tax rates in this case, or alternatively, they can keep the profits to fund the sustainable investments that they say they are going to make, but they'd have to deposit a plan for what they are to avoid the charge. This sounds like tax justice to me.
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Share Buybacks – yet another morality free zone.
So markets are the best arbiter of value are they? How can that be when you can do something like this?
And all it does is support the status quo.
And let’s not forget share buy-backs = fewer shareholders = less paid out in dividends = more to fuel bonus payments.
Most pertinently, higher share price = triggered director bonus
The oil companies are making hay while the sun shines as they know that in the long term they will be forced by climate heating measures to drastically reduce production and that the short-term profit boost will not last. I wonder how much cash is stashed away by the top oil executives in Swiss bank accounts and other tax havens?
Shareholders get $90 billion in dividends and share buybacks. Individuals then decide where they’d like to invest their money. Quite possibly in the Green Revolution.
Unless this is stopped by a tax, of course .
You know that is drivel
Share buy backs are a little pathetic, as the company is essentially saying it has too much money and can’t think of anything productive to do with it, and so passing that abdicating the decision and passing it back to shareholders.
A company does not get a tax deduction for buying back its own shares, so the payment comes out of profits that have been taxed in the hands of the company. For what it is worth, I think there is a good case for imposing a windfall tax there, as 19% corporation tax is far too low, and the excess profits are truly windfalls falling in the lap of the companies.
And then proceeds of a share buy back are taxable in the hands of the recipients, sometimes as a capital gain but more often as a dividend. And again there is something to be said for equalising rates, as 20% on capital gains is far to low compared to 38% on dividends.
But how are you going to levy windfall taxes on companies based outside the UK, on tax exempt shareholders such as charities and pension funds, and on shareholders based outside the UK?
The company must pay the tax
London has an overly large share of extra tubes, albeit the biggest buybacks will be in the US
Extra tubes? Um, is that businesses in the extractive sectors – oil, gas, mining, etc?
Have I done a typo? Hard to see when I am moderating…..
Can I ask a naïve question – because company taxation is something I am completely ignorant about?
Is there any reason why companies shouldn’t be taxed on their distributed profits in a graduated way, like income tax? What I have in mind is a lower level of tax up to a threshold based on the level of annual turnover (say, profit of 5% of turnover, possibly calculated as a three-year rolling average) with a higher rate above that. That would automatically mean unusually high (“windfall”) profits would fall in the higher tax band.
Of course it would depend on the technicalities of determining the numbers unambiguously, and whether it would be open to gaming. I would have thought company turnover should be easy to establish, so the question is whether distributed profits can be objectively assessed – it isn’t always clear that newspaper reports of company profits correspond to what I would include. I would see them including dividends (obviously), share buy-backs, bonuses in excess of (say) 10% of an employee’s base pay, and increase in non-productive assets (like cash).
Profits and turnover are not heavily related so that does not work
But it is possible to tax by amount of profit – indeed, we used to do so to some degree
The biggest concern though must be the replacement of share capital, which only (in theory!) gets a dividend if the firm makes a profit with loans which have to be repaid irrespective of the companies position.
People keep talking about corporation tax of 19%, but isn’t it the case that oil and gas production in the UK are subject to Ring Fence Corporation Tax (RFCT) at 30% and Supplementary Charge (SC) at 10%?
Some is
So?