Changes made to windfall tax rules after Irish oil refinery warned new charge could force it to shut down

Secret Cabinet document shows how scope of tax was diluted after lobbying from Irving Oil

Owners of Whitegate oil refinery in Cork told the Government that the windfall tax on profits could force its closure

Hugh O'Connell

The Government made changes to its windfall tax on bumper energy profits after the owners of the country’s only oil refinery warned that the new charge could force it to shut down.

A secret Cabinet document shows the scope of the tax was diluted following lobbying from Irving Oil, the owners of Whitegate oil refinery.

Ministers were told in a confidential memo that disruption to the operation of the Cork refinery – which can process 75,000 barrels of oil a day and employs around 230 people – could impact on consumer oil supplies, particularly in the south of the country.

“Maintaining an operating refinery in the country is therefore the preferred option from an oil security-of-supply perspective,” the memo stated.

There is renewed focus on energy costs for households after it emerged ESB profits surged to €857 million following price hikes in the teeth of the energy crisis.

However, speaking on Tuesday, Environment Minister Eamon Ryan would not commit to the introduction of another €200 electricity credit for all households. He cautioned that windfall tax proceeds may not be sufficient to fund another credit.

Now, the Irish Independent can reveal how ministers were told potential proceeds from the new tax on fossil fuel companies would be reduced, as a result of the changes made to the “temporary solidarity contribution”.

The contribution forms part of Government windfall tax measures aimed at raising as much as €600m. The solidarity contribution is expected to raise between €200m and €450m of this.

There is also a cap on renewable energy companies’ revenues, which is expected to raise up to €150m.

Legislation underpinning the new measures is expected to be passed by the summer, and the proceeds are expected to be collected in September 2023 and September 2024.

In a letter as well as in subsequent meetings, Irving Oil warned of the impact of the charge on the refinery’s viability. It stated that it had made significant losses in recent years along with the levels of investment made to ensure its continued safe operation.

As a result of this, the Government decided to allow companies subject to the new tax to offset capital expenditure on assets or infrastructure over the last five years against their tax liability. This would reduce the amount of their profits subject to the 75pc tax.

Ministers were also explicitly told in the memo that the change “reduces the potential proceeds from the temporary solidarity contribution in line with the investments made”.

The memo added that it was considered a “balanced measure” that would maximise returns to the exchequer, reduce the risk of the refinery closing, and any consequent impact on the security of the State’s oil supply.

Public Expenditure Minister Paschal Donohoe also noted to colleagues in the memo that as well as reducing expected revenues from the charge, it would afford those subject to the tax an opportunity to reduce their tax liability by making new capital investments in 2023.

Ministers were told that while there was potential for other industry operators to fill the resulting supply gap from the closure of Whitegate through other terminals like Dublin and Foynes, there would be logistical implications in terms of cost and the availability of drivers and trucks.

The 75pc tax rate is one of the highest across Europe and the memo also recorded concerns expressed by the leaseholders of Corrib Gas Field – Vermilion Energy and Nephin Energy – about the potential impact of the tax on international investor sentiment toward Ireland.

However, the memo pointed out that while most other jurisdictions have existing taxation royalty payments to capture windfall gains, this is not the case in Ireland.

Vermilion is among the companies to issue a legal challenge to EU windfall tax measures. Ireland has decided not to intervene in any of these cases.