Questions and Answers: An adjusted package for the next generation of own resources
How does the own resources system work today?
There are currently four own resources for the EU budget:
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-Customs duties, which are levied on imports, collected at the external borders of the EU, and go directly to the EU budget. Member States retain 25% of the amount as collection costs.
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-The Value Added Tax own resource, which has been simplified as of 2021. A uniform call rate of 0.3% applies to the value added tax bases of all Member States.
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-The statistical-based own resource based on non-recycled plastic packaging waste is the main novelty of the previous Own Resources Decision of 2020. Member States contribute €0.80 per kilogramme of their plastics packaging waste that is not recycled. A correction is applied to contributions of Member States with a GNI per capita in 2017 below the EU average.
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-The Gross National Income (GNI) own resource remains the main source for financing the EU budget. All Member States contribute according to their share in the EU27 GNI. A lump sum reduction is applicable to Austria, Denmark, Germany, the Netherlands and Sweden.
These four own resources account for more than 90% of revenues. Other sources of revenues include taxes and other deductions from EU staff salaries, contributions from non-EU countries to certain programmes, interest on late payments and fines.
Why is the Commission proposing a new own resource package?
As part of the 2020 agreement on the long-term EU budget and NextGenerationEU, the European Parliament, EU Member States in the Council and the Commission agreed on a roadmap to introduce new own resources to the budget to support the reimbursement of the NextGeneration borrowing.
On that basis, the Commission committed to make two sets of proposals for new sources of revenue to the budget. The first proposal was presented in December 2021 and included proposals based on Emissions Trading System (ETS), Carbon Border Adjustment Mechanism (CBAM), and the OECD Pillar One agreement. Since then, little progress has been achieved. In an attempt to speed up the negotiations, the Commission has today adjusted and complemented its proposal, ahead of the initially planned date of 2024.
How is the final basket of proposed own resources calibrated?
In view of today's adjustments to the agreement on elements of Fit for 55, the package of own resources to be negotiated in the Council will consist of:
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-An own resource based on revenues from emissions trading (ETS): it applies a 30% call rate on the revenues from the auction of ETS allowances (and the market value of allowances that Member States decide not to auction). A solidarity mechanism will apply to avoid that Member States contribute disproportionally as compared to their relative income.
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-An own resource generated by the EU carbon border adjustment mechanism (CBAM), with a simplified control system compared to the proposal of December 2021. 75% of the revenues from the mechanism will be allocated to the EU budget.
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-A temporary statistical based own resource on company profits, until the establishment of an own resource based on an upcoming initiative to simplify corporate tax rules and tax compliance: Business in Europe: Framework for Income Taxation (BEFIT). This temporary own resource comes with a 0.5% call rate to the gross operating surplus statistics recorded for the sector of financial and non-financial corporations of each Member States under the European system of accounts (ESA). This contribution is by no means a tax on companies and will not increase their compliance costs.
In addition, the own resource, proposed in December 2021, based on the share of residual profits from multinationals that will be re-allocated to EU Member States under the OECD/G20 agreement on a re-allocation of taxing rights (“Pillar One”) is maintained.
How much revenue will each of these elements deliver?
Based ona carbon price assumption of €80 per tonne, the ETS own resource will generate about €19 billion (2018 prices) per year at cruising speed, when the revenues from the new ETS enter into the EU budget. It is estimated that the CBAM own resource will generate about €1.5 billion (2018 prices) per year as of 2028. The statistical-based own resource on company profits would provide revenues of about €16 billion (2018 prices) per year as of 2024.
Under current assumptions, this package is expected to deliver collectively on average €36 billion (2018 prices) per year as of 2028.
How will the new own resources contribute to the repayment of NextGenerationEU?
The repayment of the borrowing for NextGenerationEU will be spread over more than three decades, to be concluded by 2058.
Repayments will be financed through the general budget in line with the universality principle of the EU budget.
The EU will under any circumstances honour its obligations to repay NextGenerationEU borrowing including interest and the repayment of the principal.
However, this repayment should not lead to an undue reduction in programme expenditure or investment instruments under the MFF. It is also desirable to mitigate the increases in the GNI-based own resource for the Member States. Finding an agreement on the new own resources proposed today will facilitate discussions on the future long-term budgets and focus minds on strategic priorities, rather than the level of national contributions.
Is the Commission proposing EU taxes with this package?
The Commission does not propose EU taxes with this updated package. The Emissions Trading System and the Carbon Border Adjustment Mechanism are market-based instruments. The purpose of the revision of the Own Resource Decision is to allocate a share of the revenues generated by these instruments to the EU budget. Similarly, the temporary statistical-based own resource on company profits is a statistical-based own resource. The contribution due by Member States will be proportional to statistics on gross operating surplus. Companies will not be affected.
How will the EU collect the own resources mentioned in the package?
As regards the ETS-based own resource:
The Commission proposes a mechanism in which the largest part of the ETS-based own resource is collected and made directly available to the EU budget on behalf of Member States by the auction platform. The revenues are therefore directly transferred to the EU budget without being channeled through Member States' accounts. The auction platform is a vehicle under ETS legislation operating under the responsibility and on behalf of Member States.
Member States that exercise their right not to auction some of their allowances are required to contribute a proportional amount. The ETS contributions are adjusted with the solidarity adjustment mechanism, requiring minimum contributions or capping them at a maximum contribution.
As regards the CBAM-based own resource:
The Commission proposes a mechanism where CBAM revenue is collected by the competent authority of the Member State where the declarant is located. Member States retain 25% of the CBAM revenues. The remaining 75% are made available to the EU budget by Member States once per year (in February) following the Commission's call for funds.
As regards the temporary statistical own resource based on company profits:
This own resource entails applying a 0.5% call rate to the gross operating surplus for the sectors of financial and non-financial corporations recorded for each Member State under the European System of Accounts (ESA). Member States make this own resource available to the EU budget monthly following the Commission's call for funds.
As regards the own resource based on reallocated profits (OECD Pillar 1), similar arrangements have been proposed. This own resource consists in applying a uniform call rate of 15% to the share of residual profits of the multinational enterprises reallocated to Member States and declared to the Commission. The implementation of the OECD/G20 Pillar 1 agreement remains an essential priority. Substantive progress has been made following the October 2021 agreement and the Commission will continue to promote such efforts. However, the multilateral convention has not yet been signed and ratified, which means that it cannot yet enter into force.
How do the proposals today relate to the Fit for 55 package?
In December 2022, the EU agreed on the Fit for 55 package, aiming at reducing greenhouse gas emissions across the EU with the objective of reaching climate neutrality by 2050.
The original proposal for new sources of revenue to the EU budget was closely linked to the proposal for the Fit for 55 package. It therefore needs to be aligned with the final text, also taking into account new market developments considering the increased carbon prices.
More concretely, the updates concern:
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-The contribution of the new ETS on building, road transport and other sectors will apply as from 2028.
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-The call rate for the ETS-based own resource was adjusted from 25% to 30% to account for carbon market developments. Since July 2021, when the Commission presented the legislative proposals, the carbon price has increased from approximately €55 per tonne of CO2 to €80 per tonne of CO2. With a 30% call rate, the revenues for Member States will still be higher than expected when proposing the Fit For 55 proposal, with on average €46 billion per year as from 2028.
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-Following the agreement on a new governance model for the CBAM, the Commission will need to assist Member States in the implementation of CBAM, including some control tasks. Therefore, the control to be performed for the own resource should be lighter.
Statistical based own resource on company profits
How will the statistical own resource based on company profits work?
This new statistics-based own resource would be calculated on the basis of the gross operating surplus for the sectors of financial and non-financial corporations. This is a statistical indicator of profits for companies based in the EU according to the European System of Accounts 2010, verified and published by Eurostat.
The own resource would then equal 0.5% of the gross operating surplus.
Why are you proposing a “temporary” own resource rather than a permanent one?
The statistical based own resource on company profits aims at ensuring a contribution from the corporate sector before an agreement on the forthcoming initiative on Business in Europe: Framework for Income Taxation (BEFIT) is reached and a respective own resource is proposed and approved.
Given the required unanimity, also on tax proposals, an agreement on the two pieces of legislation is expected to take some time, which is incompatible with the need to speed up the negotiations on new sources of revenue to the budget.
When will the new own resources apply?
The Commission proposes that the contribution from the existing ETS, covering stationary installations, maritime and aviation and from the statistical based own resource on company profit applies as of 2024. The contribution from CBAM and the new ETS on building, road transport and other sectors will apply as of 1 January 2028.
The own resource decision will enter into force once agreed by Member States in the Council, after seeking the opinion of the European Parliament, and ratified by Member States in accordance with their respective constitutional requirements.
What are the legal provisions under which the package is negotiated and agreed?
Any own resource proposal is being negotiated in the Council according to the special legislative procedure set in Article 311 of the Treaty on the Functioning of the European Union.
This means that the adoption 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.
What was the analytical basis for today's proposal?
Before putting forward today's package, the Commission carried out an analysis of all available options for new sources of revenue to the budget.
This analysis of new own resource candidates is available in the Staff Working Document (SWD) accompanying today's proposal. The analysis assesses the potential new own resources according to three criteria - revenue potential, simplicity, and fast mobilisation of revenues.
Today's package presents the optimal mix of revenue on the basis of this analysis, in view of the need for a speedy mobilisation of new sources of revenue to the budget.
For More Information
Revenue | European Commission (europa.eu)