EU looks to pull revenue from share of OECD tax deal, environmental measures

By Doug Connolly, MNE Tax

The European Commission on December 22 proposed three “own resources” for the EU budget, including taking a share of the taxing rights to be reallocated to EU member states under Pillar One of the OECD Inclusive Framework tax deal reached in October.

The two other proposed resources would be based on the EU’s recently proposed carbon border adjustment mechanism and on a share of revenues from EU’s emissions trading system.

The Commission’s original plans to introduce a digital levy as an own resource were set aside over the summer and eventually abandoned in favor of supporting the OECD tax deal – from which the Commission now proposes a new own resource to replace the planned digital levy.

Pillar One of the OECD deal would reallocate taxing rights between nations, shifting the taxing rights for a share of the largest multinational groups’ residual profits to market countries. The Commission proposes that the EU take 15% off the top of such taxing rights that would pass to EU member states under the agreement.

The carbon border adjustment mechanism, proposed in July, would put a carbon price on imports of certain products to correspond to the carbon price that would have been paid had the goods been produced under the EU’s carbon pricing rules. The Commission proposes to take for the EU’s budget 75% of the revenues from the measure.

Under the EU’s emissions trading system, member states currently receive most the revenues from the auctioning of emission allowances. Under the proposal, the EU would take a 25% share for its own budget.

These additional budget resources are intended pay for stimulus measures adopted in response to the Covid-19 pandemic. The Commission expects that the new measures would bring in up to EUR 17 billion (USD 19.2 billion) per year within a few years.

To be adopted, the proposed budget measures would need to be approved by the European Council in consultation with the European Parliament.

The Commission plans to propose further new EU budget measures in 2023 based on its new BEFIT common corporate tax base proposal.

Currently, the EU pulls revenues for its budget from four own resources: customs duties, value-added tax, member state contributions based on plastics packaging waste, and (primarily) member state gross national income contributions.