The European Commission’s work programme for 2021 was finally published on 19 October. It gives an indication of the Commission’s intention to use new taxes to finance the EU’s budget.
We have known for a while that the current Commission’s tax priorities include digital and green taxation. We also know that the Commission is planning new own resources to help fill the coffers of the EU budget.
Currently, EU’s sources of funding stem from three main sources:
customs duties on imports to the EU;
a 0.3% share of each EU member state’s VAT revenues; and
EU member states’ national contributions to the EU budget based on gross national income (GNI).
As such, most tax legislation coming from the EU does not seek to raise tax income for the EU itself. Rather, these rules aim to streamline and converge the national tax regimes across the EU, and to improve their functioning. Examples include the Directive on Administrative Cooperation (DAC), the Anti-tax Avoidance Directive (ATAD) and the yet to be approved proposal for a common consolidated corporate tax base (CCCTB).
2021 will be a year of change in this regard. According to its 2021 work programme, the Commission plans to propose new income streams for the EU budget from the carbon border adjustment mechanism (CBAM) (the carbon border tax) and a ‘digital levy’. Both measures are expected to be proposed by June 2021, and both raise some questions.
The Commission is making great efforts to ensure that CBAM is compatible with the World Trade Organisation’s rules. One of the major conditions for this is that the measure should aim to level the playing field for EU companies subject to more stringent environmental standards than extra-EU companies. Its main objective should not be to raise additional revenues. It will be interesting to see how the Commission balances the various policy objectives (revenue raising for the EU budget, ensuring fair competition in the EU, and fostering the take-up of higher environmental standards outside of the EU), whilst not exposing the EU to retaliatory measures by third countries.
The digital levy, for its part, continues to baffle the Brussels bubble. It is well known that the Commission intends to transpose any OECD agreement on international taxation (including of digital business models) into EU law – or, if there is no OECD agreement, to issue a stand-alone EU proposal. It is less clear how and where an EU own resource digital levy would fit in.
Will the Commission propose to earmark a portion of member states’ digital tax income for the EU budget (as it does with VAT)? Or will the Commission issue two separate proposals: one transposing an OECD (or EU-only) solution into EU law; and the other introducing an extra digital tax on certain types of businesses and allocating the yield to the EU budget?
The Commission was expected to publish its plans regarding digital taxation – in its so-called ‘communication on business taxation for the 21st century’ – in July this year. This was delayed until October, and it has now been postponed to early 2021.
One thing is certain: the Commission and EU member states agree that the time has come for the EU to gain additional sources of revenue, and it’s clear that covid-19 may have played a role in this. When earlier this year EU member states approved the Commission’s plans to issue bonds on the financial markets on the EU’s behalf to help fund the covid-19 recovery package, some observers dubbed it Europe’s ‘Hamiltonian moment’. If successful, the Commission’s plans to increase its tax revenue sources (that would, notably, help to repay this debt) could be seen in a similar light.
Home >Articles > EU watch: the hunt for new revenues
EU watch: the hunt for new revenues
The European Commission’s work programme for 2021 was finally published on 19 October. It gives an indication of the Commission’s intention to use new taxes to finance the EU’s budget.
We have known for a while that the current Commission’s tax priorities include digital and green taxation. We also know that the Commission is planning new own resources to help fill the coffers of the EU budget.
Currently, EU’s sources of funding stem from three main sources:
customs duties on imports to the EU;
a 0.3% share of each EU member state’s VAT revenues; and
EU member states’ national contributions to the EU budget based on gross national income (GNI).
As such, most tax legislation coming from the EU does not seek to raise tax income for the EU itself. Rather, these rules aim to streamline and converge the national tax regimes across the EU, and to improve their functioning. Examples include the Directive on Administrative Cooperation (DAC), the Anti-tax Avoidance Directive (ATAD) and the yet to be approved proposal for a common consolidated corporate tax base (CCCTB).
2021 will be a year of change in this regard. According to its 2021 work programme, the Commission plans to propose new income streams for the EU budget from the carbon border adjustment mechanism (CBAM) (the carbon border tax) and a ‘digital levy’. Both measures are expected to be proposed by June 2021, and both raise some questions.
The Commission is making great efforts to ensure that CBAM is compatible with the World Trade Organisation’s rules. One of the major conditions for this is that the measure should aim to level the playing field for EU companies subject to more stringent environmental standards than extra-EU companies. Its main objective should not be to raise additional revenues. It will be interesting to see how the Commission balances the various policy objectives (revenue raising for the EU budget, ensuring fair competition in the EU, and fostering the take-up of higher environmental standards outside of the EU), whilst not exposing the EU to retaliatory measures by third countries.
The digital levy, for its part, continues to baffle the Brussels bubble. It is well known that the Commission intends to transpose any OECD agreement on international taxation (including of digital business models) into EU law – or, if there is no OECD agreement, to issue a stand-alone EU proposal. It is less clear how and where an EU own resource digital levy would fit in.
Will the Commission propose to earmark a portion of member states’ digital tax income for the EU budget (as it does with VAT)? Or will the Commission issue two separate proposals: one transposing an OECD (or EU-only) solution into EU law; and the other introducing an extra digital tax on certain types of businesses and allocating the yield to the EU budget?
The Commission was expected to publish its plans regarding digital taxation – in its so-called ‘communication on business taxation for the 21st century’ – in July this year. This was delayed until October, and it has now been postponed to early 2021.
One thing is certain: the Commission and EU member states agree that the time has come for the EU to gain additional sources of revenue, and it’s clear that covid-19 may have played a role in this. When earlier this year EU member states approved the Commission’s plans to issue bonds on the financial markets on the EU’s behalf to help fund the covid-19 recovery package, some observers dubbed it Europe’s ‘Hamiltonian moment’. If successful, the Commission’s plans to increase its tax revenue sources (that would, notably, help to repay this debt) could be seen in a similar light.
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