Commission Proposes Move Towards Tax-Based System Of Funding For EU

by Ulrika Lomas, Tax-News.com, Brussels

16 July 2004

The European Commission’s resource report has proposed that the Council consider a new funding system for the EU based on raising funds from energy taxation, VAT or corporate income tax.

The proposal is a recognition by the Commission that the present system of funding has become increasingly opaque and overly reliant on contributions from national treasuries. It is also appropriately timed given the current debate surrounding the individual contributions made to the EU budget by member states.

Commenting on the decision, Budget Commissioner Michaele Schreyer noted: “The proposal reflects the nature of the EU as a Union of Member States and citizens by clarifying the link between the taxpayer and the EU budget.”

“It will also help us move on from the sterile debates about Member States net contributions by ensuring that resources are collected across the EU as imposed and not simply from national treasuries,” she added.

Currently, over 73% of the EU budget is financed by contributions from national treasuries in proportion to the gross national income of the Member State, while revenues from other sources such as customs duties and VAT are decreasing.

To arrest this decline, the Commission has suggested that funding come from one of three levies: a tax on energy consumption, to be limited to motor fuel for road transport; national VAT, which could help make the financing of the EU more understandable to citizens with the inclusion of the EU portion of the rate displayed on receipts and invoices; or corporate income tax – politically the most contentious since it involves agreement on the harmonisation of the corporate tax base.

The Commission has asked the Council to discuss the options whilst a roadmap towards a 2014 implementation is drawn up. However, the proposals are likely to prove politically divisive.

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