Back to the drawing board for Europe-wide taxes

European Council President António Costa has taken over the negotiations on the bloc’s next long-term budget, with one of the biggest question marks being how he will resolve the challenge of new EU-wide taxes.

European Council President António Costa is scrambling to find new EU-wide taxes to fund the bloc’s next long-term budget after last week’s inconclusive summit left leaders deadlocked over how much they are willing to pay.

With national governments reluctant to increase their contributions, Costa is exploring ways to raise money directly for Brussels, from taxes on large companies and digital services to levies on tobacco, carbon emissions and online gambling.

And with negotiations entering a critical phase, no option appears to be off the table.

“To reach an agreement, we need to keep national contributions at a reasonable level, while preserving our ambition and the means to deliver on our common priorities. For this to be possible, it is fundamental to consolidate the work on the new own resources,” Costa said at a press conference following last week’s European Council summit.

Throughout his tour of the capitals, Costa returned again and again to the same point: EU-wide taxes are essential to square the circle between strained national budgets and the bloc’s emerging priorities.

EU leaders failed to bridge their differences over the budget last week, leaving Costa to steer the next stage of negotiations.

During his tour of European capitals, he repeatedly stressed that new EU revenue sources – known in Brussels as own resources – are essential to reconcile strained national finances with the bloc’s growing spending ambitions.

“We had three tests for new own resources. One, that they command unanimity. Two, that they can deliver substantial funds. And three, that they’d be ready, by the 1st of January, 2028,” Thomas Byrne, Ireland’s Minister of State for European Affairs, said when presenting when presenting the country’sbudget compromise.

The Irish proposal nonetheless drew criticism from all sides, including the European Parliament, whose ideas for new taxes on digital services, online gambling and crypto assets could raise up to €25bna year.

“It is clear that the presidency refused to take any decision on the revenue side, proposing only minor adjustments. We are especially very disappointed that none of Parliament’s proposals were taken on board, despite having received positive feedback from many member states,” said MEP Danuše Nerudová (Czechia/EPP).

Indeed, the Irish compromise kept the Corporate Resource for Europe (CORE), one of the most contested proposals among member states, which argue that taxing companies runs counter to the EU’s competitiveness agenda.

The Commission has defended the proposal, stressing that CORE would only hit large companies with a net annual turnover above €100m, and that the contribution would normally be lower than the bonuses paid to their senior executives.

But the Commission is now examining whether CORE could be combined with a digital levy, another controversial proposal that risks provoking Washington because most of the world’s biggest technology companies are American.

Under the emerging idea, the tax would no longer target a specific sector. Instead, the threshold would be set high enough to ensure that it fell mainly on large foreign companies, whether American or Asian.

Such a compromise could become increasingly important as other potential revenue sources run into opposition.

One proposal would divert 30% of revenues from the EU’s Emissions Trading System (ETS), which charges major polluters for their carbon emissions, into the EU budget.

Poland has been particularly vocal against sending ETS revenues to Brussels. The issue has become so politically charged at home that Warsaw may struggle to accept it as it heads towards elections next year.

The Irish compromise also kept the Tobacco Excise Duty Own Resource (TEDOR), which would see member states pay the EU a 15% call rate on the excise duty on tobacco products. Governments fear it could fuel the black market and lead to a drop in quality.

Luxembourg is particularly opposed. Though small, the Grand Duchy is a net contributor that seldom objects to the Commission’s budget proposals, so it may have significant political capital to spend against TEDOR.

Other proposals have attracted broader support. The least controversial is a revenue, which puts a carbon price on certain imports, including steel and cement, to ensure foreign producers face costs comparable to their EU competitors

A tax based on the amount of electronic waste each EU country produces is also largely uncontroversial, with most open issues technical in nature.

Parliament’s proposed tax on online gambling, however, has met strong opposition from Malta, home to most of the EU’s betting websites.

Another parliamentary proposal, a tax on capital gains from crypto assets, is widely seen as extremely difficult to implement, with highly uncertain yields given the market’s volatility.

Greece has also proposed coordinating national 6G spectrum auctions to finance the EU budget. But member states have long resisted harmonising spectrum allocation, which has traditionally brought in significant national revenue.

“Now is the moment to evaluate the situation and assess the best way forward. We do not exclude taking on board any proposals,” an EU official with direct knowledge of the matter told Euronews on condition of anonymity.

“We will need to modulate the own resources to better distribute their impact on the member states,” the official added.

Source: www.euronews.com