Will the EU become independent of its member states through its own taxes? Significance, opportunities and risks for SMEs in Europe – Image: Xpert.Digital
How the EU plans to finance its future
Between debt and the future: The EU's complex financial plan
The European Commission faces the challenge of financing the next Multiannual Financial Framework (MFF) 2028-2034 while simultaneously having to repay the debts of the NextGenerationEU programme * 1 by 2058
*1 “NextGenerationEU” is a European recovery fund created in response to the COVID-19 pandemic. It is the largest economic stimulus package in EU history. Its aim is to mitigate the economic consequences of the crisis, promote investment in digitalization and climate protection, and make the EU more resilient in the long term. The program is financed through joint EU borrowing.
Annual debt repayment costs are expected to amount to between 25 and 30 billion euros per year, which is almost one-fifth of the current annual budget. In this context, leaked documents concerning the planned equity reform have proven particularly revealing.
More information here:
Content of the leaked proposal
According to the leaked documents, the European Commission is planning a comprehensive package of new own resources that goes significantly beyond previous proposals. The key elements include:
New corporate tax
The most notable component is a new levy for large companies with an annual turnover exceeding €50 million. This is to be introduced as a flat annual fee, tiered according to the company's turnover. It would affect all companies resident for tax purposes in the EU, as well as companies from third countries with EU branches or permanent establishments.
Increase in existing taxes
The plastics levy of 80 cents per kilogram of non-recycled packaging, introduced in 2021, is to be increased from 2028 and subsequently adjusted annually for inflation. The Commission justifies this by stating that inflation has significantly reduced the real value of the revenue.
New taxes on various areas
- E-waste levy: A levy on uncollected electronic waste as a new source of own funds
- Tobacco tax share: A certain percentage of the tobacco taxes collected by the member states is to be transferred to the EU
- E-commerce levy: A levy on parcels from abroad in the context of e-commerce
Changes to traditional equity
The Commission plans to increase the share of customs revenue that EU member states are allowed to retain as collection costs. Currently, member states retain 25 percent of customs revenue – this share is to be reduced.
All changes to the own resources system require the unanimity of the 27 EU member states after consultation with the European Parliament. This presents a significant obstacle, as Poland has already threatened to veto any matter requiring unanimity.
Ratification process
Following a unanimous decision in the Council, all member states must ratify the own resources reform. This process can take years, as experience with the ratification of the current Own Resources Decision has shown.
Resistance from Member States
Significant resistance is already emerging. Fourteen member states have expressed their opposition to the Commission's plans to centralize the management of funds in a non-paper. Several fiscally conservative member states have also voiced skepticism regarding the opening of the already approved Multiannual Financial Framework (MFF).
Economic impact
The new corporate levy would represent a significant additional burden for large companies. Multinational corporations, already burdened by various international tax initiatives, would be particularly affected. While the Commission emphasizes that it is not a direct tax but rather a contribution to be made by member states, the burden is likely to be passed on to companies in the end.
competitiveness
The new levies could impair the competitiveness of European companies compared to international competitors. This stands in some contradiction to the simultaneously planned investments of up to €522 billion in the European Competition Fund.
Inflation effects
The planned indexation of the plastics levy to inflation shows that the Commission expects prices to rise in the longer term and intends to adjust its own resources accordingly.
Federalism and sovereignty
The reform of own resources represents a significant step towards a European fiscal union. By diversifying revenue sources, the EU will become less dependent on direct contributions from member states. This could strengthen the Commission's negotiating position in future budget negotiations.
National sovereignty
The new own resources touch upon traditional areas of national sovereignty, particularly the taxation of companies and control over customs and tax revenues. This is likely to encounter considerable resistance, especially in countries that place a strong emphasis on national sovereignty.
Democratic legitimacy
The European Parliament has repeatedly called for a stronger role in shaping the EU's own resources. The current proposals could strengthen the democratic legitimacy of the EU budget if they are linked to corresponding parliamentary oversight rights.
Timing and implementation
The Commission intends to present its formal proposal on 16 July 2025. This leaves little time for extensive consultations and adjustments. The new MFF must be adopted by 2027 at the latest in order to enter into force in January 2028.
Transitional arrangements
Since negotiations on new own resources typically take years, the Commission may be planning transitional arrangements. The temporary own resources based on corporate profits could serve as a bridging solution until more comprehensive reforms are implemented.
Between sovereignty and solidarity: The controversial plans of the EU Commission
The leaked proposals for own resources reform represent one of the most far-reaching changes to the EU financial system in decades. They aim to make the EU more financially independent while ensuring the repayment of NextGenerationEU debt. However, the proposals are expected to face significant political opposition and require complex negotiations.
The reform touches upon fundamental questions of European integration, national sovereignty, and democratic legitimacy. While it could strengthen the EU's financial capacity, it also carries the risk of further burdening businesses and potentially leading to conflicts between member states.
The success of the reform will depend significantly on whether the Commission takes the concerns of the member states seriously and finds compromises that respect both the financial stability of the EU and the sovereignty of the member states.
Consulting - Planning - Implementation
Markus Becker
I would be happy to serve as your personal advisor.
Head of Business Development
Chairman SME Connect Defense Working Group
