International Financial Law Prof Blog

Editor: William Byrnes
Texas A&M University
School of Law

Tuesday, May 4, 2021

EU Publishes New Potential Sources of Tax revenue

In addition to simplifying existing own resources, the need to introduce new own resources of the EU budget has been on the EU agenda for a long time. Some of the key arguments in favour of new sources of revenue have been:

  • reducing the weight of the Gross National Income (GNI)-based own resource in the EU budget;
  • bringing more proportionality, fairness and stabilising impact to the EU budget, while reflecting the fluctuations in Member States' economic cycles;
  • reforming the own resources system to help address new challenges, by designing new own resources that bring also additional benefits alongside the stream of fiscal income;
  • introducing more diversified and resilient types of own resources, directly related to EU competences, objectives and priorities.

According to Article 311 of the Treaty on the Functioning of the European Union (legal basis for the Own Resources Decision), the Union "shall provide itself with the means to attain its objectives and carry through its policies". When introducing new Own Resources, attention should be paid to (i) their transparency, simplicity and stability; (ii) their consistency with EU policy objectives; (iii) their impact on competitiveness and sustainable growth; and (iv) their equitable breakdown among Member States.

The plastic own resource, a contribution based on the non-recycled plastic packaging waste, has been in place as a new revenue source to the 2021-2027 EU budget since January 2021.

Other potential new sources of revenue

In the coming years the Commission, the European Parliament and the Council will work together to introduce new own resources for the EU budget. These resources will not create new taxes for European taxpayers, as the EU does not have the power to levy taxes. Existing tax instruments are mainly deployed at national level, hence the introduction of new categories of own resources will fully respect national fiscal sovereignty.

Possible new own resources:

Carbon border adjustment mechanism icon

Carbon border adjustment mechanism: the Commission will make a detailed proposal by June 2021, with a view of introducing the new source of revenue by 1 January 2023 at the latest. The carbon border adjustment mechanism entails a tax on any product imported from a country outside of the EU that does not have a system to price carbon, like the EU ETS (see below). This is meant to adjust the price of the imported goods as if they were produced in the EU and ensure fairness for European companies.

Digital levy icon

Digital levy: the Commission will out forward a proposal by June 2021, with a view of introducing the new own resource by 1 January 2023 at the latest. The digital levy would stem from digital business activities, which are intrinsically dematerialised and profiting from mostly intangible assets. A digital levy would be a solution to the inadequateness of current corporate tax rules for the digital economy.

EU Emissions Trading System (ETS) icon

EU ETS-based own resource: the Commission will make a proposal for an EU Emissions Trading System (ETS)-based own resource, including a possible extension of this system to the maritime and aviation sectors, in the spring of 2021. The ETS is the EU carbon market, through which installations (companies) buy or receive emission allowances. Allowances permit companies to emit an equal amount of greenhouse gases emissions within an established cap that decreases over time. The ETS has a direct link to the functioning of the Single Market and it is a key tool of EU action to reduce greenhouse gas emissions in a cost-effective way.

In addition, the Commission will propose further new own resources, which could include a Financial Transaction Tax, a financial contribution linked to the corporate sector or a new common corporate tax base. The Commission will work to make the relevant proposals by June 2024.

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