European Commission eyes watering down big business tax to unlock EU budget deal

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BRUSSELS — The European Commission is considering watering down a tax on big businesses designed to raise money for the EU’s next seven-year budget, four EU officials with knowledge of the discussions said.

In an attempt to overcome resistance from national capitals, the EU executive is planning to reduce the number of companies covered by the new levy.

The Commission is considering exempting less profitable firms and raising the eligibility threshold to carve out small and medium-sized enterprises. But critics warn that cosmetic changes will not be enough to facilitate an agreement.

As EU budget negotiations pick up pace, the issue of new EU-wide taxes — known as own resources — is emerging as one of the hardest problems to solve.

The Commission proposed five new own resources last year to generate fresh revenue to cover soaring defense and competitiveness spending, as well as repayments on its post-pandemic debt, without relying entirely on higher contributions from national governments.

However, the so-called Corporate Resource for Europe (CORE) — which charges an extra 0.1 percent tax on companies that operate in the EU with a net turnover exceeding €100 million — attracted the most scrutiny.

Critics, including business lobbies, the center-right European People’s Party and, crucially, the EU capitals that must unanimously approve any new EU taxes, have argued that CORE runs counter to the EU’s broader goal of enhancing competitiveness.

There are also lingering concerns that taxing revenues — as opposed to profits — is unfair as it would impose the same burden on companies with different profit margins.

Under CORE, companies with higher net turnover pay larger annual lump sums, but those with turnover exceeding €750 million all pay the same fixed amount.

To address this complaint, the Commission is considering excluding firms with dwindling profits — including potentially Germany’s big automotive sector — from the scope of the tax.

Currently, CORE applies in the same way to EU and foreign firms operating in the bloc. The Commission fears that taxing foreign firms in the EU at a higher level than European ones might violate international trade rules, said one of the officials.

Tax confessionals

The rotating Council presidency of the EU, held by Ireland, which is steering the budget negotiations, is planning to put forward a new package of taxes ahead of a leaders’ summit in October.

In addition to CORE, the Commission proposed last July a new levy on carbon imports into the EU, known as CBAM, as well as taxes on carbon emissions, non-collected electronic waste and tobacco revenues.

While most EU countries support CBAM and the e-waste tax, the other ideas have been met with strong opposition.

To break the deadlock, the European Parliament suggested in spring new taxes on online gambling, crypto firms and digital firms that were backed by some EU governments.

Dublin’s ambassador to the EU, Aingeal O’Donoghue, met counterparts over the last week to assess which of the eight taxes on the table command the most support.

The outcome of these discussions will influence the Commission’s tweaks to CORE, said one of the officials, all granted anonymity to speak freely.

In autumn, the Commission is also set to update revenue estimates for the levies to reflect recent changes to the scope of CBAM and tobacco taxation.

EU governments have cut the size of the budget by 2 percent from the Commission’s proposal — giving officials some leeway to reduce the potential revenue from the new taxes.