June 23, 2023
European Commission proposes adjusted package for the next generation of 'own resources'
On 20 June 2023, the European Commission (the Commission) published an adjusted package for the next generation of own resources (the adjusted package or the new own resources proposal). This completes and updates the package that the Commission put forward in December 2021.1 The EU's own resources are the main sources of revenue for the EU budget.
With the adjusted package, the Commission proposes, among others things, a new statistical-based own resource linked to the corporate sector. This new own resource is temporary, to be replaced by a possible contribution from Business in Europe: Framework for Income Taxation (BEFIT), once proposed and unanimously agreed upon by all Member States. It will be calculated as 0.5% of the notional EU company profit base, an indicator calculated by Eurostat on the basis of the national accounts statistics.
The proposal for the adjusted package will now move to negotiations between Member States.
On 27 May 2020, the Commission presented its proposal for a recovery plan from the crisis that societies and economies face due to COVID-19.2 To ensure the recovery is sustainable and fair for all EU Member States, the Commission proposed to create a new recovery instrument worth €750 billion, called NextGenerationEU. As part of the funding proposal for the instrument, the Commission proposed the introduction of EU taxes to complement the existing own resources, including:
On 21 July 2020, the European Council agreed on the recovery plan and the EU budget for 2021 through 2027.3 The agreement also stated that the EU would, over the coming years, “work towards reforming the own resources system and introduce new own resources.” The agreement on the new own resources followed the Commission proposal of May 2020 with two notable differences:
Subsequently, in December 2020, the European Parliament, the Council (i.e., the Member States) and the Commission reached an interinstitutional agreement under which the repayment of the NextGenerationEU must be financed by the European Union’s general budget and by sufficient proceeds from new own resources introduced after 2021.
In light of this, the Commission presented a package of the new own resources in December 2021,4 proposing three sources of revenue that would be introduced by 1 January 2023:
The Commission had also announced that it will present a proposal for a second basket of new own resources by end of 2023 that will include a Financial Transaction Tax and an additional own resource linked to the corporate sector.
The adjusted package
Since December 2021, little progress has been achieved on the negotiations of a new own resource package. In an attempt to speed up the negotiations, the Commission adjusted and complemented its 2021 proposal by publishing an adjusted package on 20 June 2023.
With the adjusted package, the Commission proposed to introduce a new statistical-based own resource, which is expected to provide revenues of approximately €16 billion per year. The new statistical-based own resource will be temporary, to be replaced by a possible contribution from BEFIT (Business in Europe: Framework for Income Taxation),5 a proposal that the Commission announced for publication on 12 September. This new own resource is not a tax on companies, but a national contribution of Member States calculated on the basis of statistics from national accounts under the European system of accounts (ESA). It will be calculated as 0.5% of the notional EU company profit base which will be defined using a harmonized indicator that roughly approximates company profits: gross operating surplus.
The Commission also proposed in the adjusted package to increase the call rate for the ETS-based own resource to 30% (up from 25% originally proposed). The call rate for CBAM (75% from all revenues generated), as proposed in 2021, remains the same.
The implementation of the Pillar One agreement (15% of the revenues of which will also contribute to the budget once entered into force) remains an essential priority for the EU and the Commission highlights in the adjusted package that it will continue to promote efforts for an agreement.
New own resources are required because the EU's annual expenditure may not exceed its revenue. Increase of expenditure due to inflation and high interest rates make the introduction of new own resources more pressing, while some Member States and political groups may call for expenditure cuts to address budgetary gaps.
The statistical-based new own resource would mean a significant increase in the national contributions to the EU budget. It is up to each Member States to find financial cover. It is expected that the majority of Member States will consider domestic tax increases, also in light of ongoing EU discussions on the Stability and Growth Pact. These rules limit national government deficits to 3% of Gross Domestic Product (GDP) and sets the public debt ceiling to 60% of GDP.
For adoption, the new own resource proposal requires a unanimous agreement by all EU Member States in the Council following a consultation of the European Parliament. In addition, EU countries have to approve the agreement at national level, in accordance with their respective constitutional requirements.
Given the complexity of the adoption processes at the EU and national level, it is difficult to predict when and in what form the various elements of the proposal will be implemented. However, given the ongoing crisis and the emerging budget gaps, there will be pressure to conclude on the own resource framework as soon as possible in 2023. If adopted, the new statistical own resources is expected to trigger tax increases in many Member States.
For additional information with respect to this Alert, please contact the following:
Ernst & Young Belastingadviseurs LLP, Rotterdam
Ernst & Young Belastingadviseurs LLP, Amsterdam
EY Société d’Avocats, Paris
Ernst & Young LLP (United States), Global Tax Desk Network, New York
Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor
1 See EY Global Tax Alert, European Commission proposes that green levies and Pillar One help finance EU recovery fund, dated 22 December 2021.
2 See EY Global Tax Alert, European Commission publishes proposal for recovery plan and adjusts 2020 Work Programme, dated 28 May 2020.
3 See EY Global Tax Alert, European Council adopts conclusions on recovery plan and EU budget for 2021–2027 , including agreement on introduction of new taxes, dated 22 July 2020.
4 See EY Global Tax Alert, European Commission proposes that green levies and Pillar One help finance EU recovery fund, dated 22 December 2021.
5 See EY Global Tax Alert, European Commission publishes Communication on Business Taxation for the 21st century, dated 18 May 2021.