The EU Proposal for New Own Resources Threatens Competitiveness
As an integral part of the Multiannual Financial Framework, published in July, the Commission also published the Own Resources Decision, which outlines potential revenue sources to support the European Union budget and raises deep concerns of the Confederation of Industry.
The Commission's Own Resources Decision introduces five new own resources for the EU. In addition to own resources linked to revenues from the Emissions Trading System (ETS 1) and the Carbon Border Adjustment Mechanism (CBAM), new own resources based on the amount of electrical and electronic equipment not collected (e-waste) and a Tobacco Excise Duty Own Resource are suggested (TEDOR). The fifth new own resource, the Corporate Resource for Europe (CORE), targets companies that are tax resident in the EU with an annual net turnover exceeding €100m. The aim is to ensure that corporations operating in the EU single market contribute to the EU budget. According to the Commission, the new system of own resources shall generate revenues of €58.2b per year in total.
| New proposed system of own resources | Expected to generate every year |
|---|---|
| 30% of the revenues generated by EU ETS (I) | €9.6 billion |
| 75% of the revenues generated by CBAM | €1.4 billion |
| €2 per kilogram of non-collected e-waste (based on weight of non-collected electric and electronical equipment) | €15 billion |
| 15% of the revenues based on the Member State-specific minimum tax rate for manufactured tobacco and tobacco-related products | €11.2 billion |
| An annual lump-sum contribution of in-scope companies operating and selling in the EU with an annual net turnover exceeding €100m (Corporate Resource for Europe/CORE) | €6.8 billion |
| Adjustments to current own resources | €14.3 billion |
| TOTAL (with a rounding difference) | €58.2 billion |
The current EU own resources for the MFF 2021 to 2027 are customs duties, contributions based on the Value Added Tax collected by Member States, direct contributions by EU countries, also known as Gross National Income (GNI), and a contribution based on the non-recycled plastic packaging waste.
In order to avoid resorting to expenditure cuts or increasing GNI-based contributions, the Commission proposes to establish new own resources. The Confederation of Industry of the Czech Republic understands there is an obligation to repay the NextGenerationEU starting in 2028 and that there is a need to address policy demands stemming from the current geopolitical landscape. In many aspects, the Confederation welcomes the policy directions included in the MFF package. Nevertheless, at the same time we are deeply worried about the new own resources proposal and have serious concerns regarding its implications for European competitiveness, especially as regards CORE.
Corporate Resource for Europe (CORE)
Under CORE, companies are divided in four groups based on their annual net turnover, and their contributions are structured as lump-sum payments ranging from €100k to €750k annually:
| Annual net turnover of the company | Annual amount of the CORE contribution |
|---|---|
| More than €100m but less than €250m | €100 000 |
| €250m to less than €500m | €250 000 |
| €500m to less than €750m | €500 000 |
| €750m or more | €750 000 |
Member States would be responsible for collecting CORE from companies on behalf of the EU. The contribution shall be payable by any company, meaning any legal person or legal entity that is resident for tax purposes in a Member State and any permanent establishment located in a Member State of entities resident (for tax purposes) in a third country. Governmental entities, international organizations and nonprofit organizations are excluded.
As a lump-sum contribution per legal entity independent of the profitability of the company, the proposed resource raises issue of fairness. Besides, although the proposal designates CORE as a "financial contribution," it bears several tax characteristics. Therefore it might raise questions regarding the proposal's legal basis, as direct taxation falls under the competence of Member States and can only be implemented through EU Directives in accordance with the stipulations outlined in Article 115 TFEU.
Furthermore, the EU's direct taxation framework is governed by the principles of subsidiarity and proportionality, which provide that - in areas where the EU does not have exclusive competence - the EU may act only when Member States cannot sufficiently achieve the objectives themselves.
As very aptly put by BusinessEurope Director General Markus J. Beyrer: „We are deeply concerned by the proposal to introduce new own resources, and notably one based on levies on companies’ net turnover (“CORE”). This measure will increase the tax burden on European companies and will further undermine the EU’s attractiveness as a destination for investment. At a time when the EU is already facing significant competitiveness challenges and comparatively high overall taxation, such an approach will create additional barriers to growth and is totally counterproductive.“
For adoption, the new own resource proposal requires a unanimous agreement by all EU Member States in the Council after a consultation of the European Parliament. Following adoption, each EU Member State must approve the agreement at the national level, in accordance with respective constitutional requirements.
The Confederation of Industry will examine and discuss all MFF proposals in more detail and constructively engage with all relevant stakeholders to help resolve these crucial issues.
Sources:
https://www.businesseurope.eu
https://www.ey.com
https://eur-lex.europa.eu