European Council President Charles Michel’s proposal for the EU’s long-term budget and coronavirus recovery fund calls for a digital tax, a financial transaction tax, a plastics levy, and a carbon border adjustment tax.
Leaders of the bloc’s 27 countries met virtually June 19 to discuss the European Commission’s May 27 proposal for a revised €1.1 trillion multi-annual financial framework (MFF) — the EU budget for 2021-2027 — and €750 billion recovery fund. In a July 10 press conference, Michel said that there was “strong opposition to the package” from some countries, prompting him to propose a revised budget and recovery plan.
Michel’s proposal keeps the MFF and recovery fund the same size, as well as the proportion of grants (€310 million) and loans (€250 billion) for the recovery and resilience facility. The so-called Frugal Four countries — Austria, Denmark, the Netherlands, and Sweden — had opposed the high grant-to-loan ratio proposed by the commission, while France and Germany backed the breakdown in their joint proposed €500 billion green economic recovery fund.
Seventy percent of the grants provided in the recovery fund would be disbursed in 2021 and 2022, while the remaining 30 percent would be rolled out through 2023, according to July 10 draft European Council conclusions seen by Tax Notes. Michel said the total envelope of the recovery would be disbursed by 2026, which contrasts with demands from France and Germany that the total recovery package be executed over two years.
Under Michel’s plan, repayment of EU-backed borrowed funds for the recovery would start in 2026 — two years earlier than the commission’s proposal — and the EU would adopt several new own resources sooner than 2024 to repay those borrowed funds.
Michel said a levy on non-recycled plastic waste would be introduced and implemented by January 1, 2021. As part of a share of revenues from national contribution, the levy would be calculated based on the weight of the plastic waste, at a rate of €0.80 per kilogram, according to the draft conclusions.
The proposal also calls for the commission to submit new proposals on a carbon border adjustment tax — which could generate €5 billion to €14 billion annually — and an EU-wide digital tax, based on the bloc’s 2018 proposal, in the first semester of 2021. The draft conclusions say the EU should aim to implement those proposals by January 1, 2023, while Michel said the digital tax should be introduced by the end of 2021. It should be noted that the EU Council recently reaffirmed its commitment to working with the OECD on a consensus-based solution to taxing the digital economy in draft terms of reference for the July 18 G-20 meeting.
Michel also said the commission should submit a revised proposal on the EU emissions trading system that would expand it to the aviation and maritime sectors, which the commission estimates could generate €10 million annually. He also said work will continue on a financial transaction tax without providing further details.
Several eastern EU countries — Bulgaria, the Czech Republic, Estonia, Lithuania, and Poland — oppose an expanded emissions trading system on the grounds that they will lose needed national revenue, and it would unfairly target coal-reliant economies.
Notably, Michel's proposal excludes a tax on turnover for companies that benefit from the EU single market and direct and indirect EU and national support, which the commission estimated could generate €10 billion annually.
Michel has proposed reducing MFF funding by a total of almost €20 billion for several programs aided through the recovery fund, including Horizon Europe; InvestEU; and the Neighborhood, Development and International Cooperation Instrument.
A new €5 billion Brexit adjustment reserve would be established “to counter unforeseen and adverse consequences in member states and sectors that are worse affected,” according to the draft conclusions, which Michel echoed in his remarks.
Additionally, Michel proposed maintaining over €6.4 billion in lump sum rebates for the Frugal Four countries, plus Germany, over the course of the MFF period to reduce their annual gross national income-based contributions, according to the draft conclusions. The commission had hoped to phase out rebates over the course of the MFF in order to offset MFF member state contribution increases resulting from the pandemic.
Commission spokesman Eric Mamer told reporters at a July 10 press briefing that the commission is looking forward to EU leaders discussing the package and coming to conclusions at its in-person summit in Brussels July 17-18, but he did not offer details on further own resource proposals.
“The commission believes that it has made both an ambitious proposal and a proposal that looks forward in a constructive manner on how to finance the expenditure and the loans that we propose in the context of Next Generation EU. I think there is ample scope for discussion,” Mamer said.