TAXI: Europa

The Economist apparently discovers EU so-called “Own Resources”. They made most of the budget of the European Commission that I joined 30 years ago. Time for the EU to stop having to beg funds regularly from Member States.

In a recent article, The Economist joins the growing club of those arguing for the EU (European Union) to get more of its funding from the policies it manages rather than having to regularly ask Member States to fill its coffers – to fund the policies they, the Member States, have asked the EU to perform.

As shown in the title graph, the European Common Market was conceived in the ’50s to pay for itself. Originally, in 1957, so-called ‘Own Resources’ were mostly custom duties. These rapidly dwindled due to trade agreements, so Member States added 1% of all VAT collected by States – on the principle that growing business would reward the European Communities for their good job.

In the ’80s the magic triangle of Commission President Jacques Delors, French President François Mitterrand and German Chancellor Helmut Kohl enlarged the Community from 6 to 12 Members whilst the Commission budget was multiplied tenfold, due to multiple new tasks. They forgot to enlarge its budget. Instead, they decided that each country would pay a share of the Communities’ budget proportional to its GDP. Very soon UK premier Maggie Thatcher noticed that UK paid in European coffers, more than what it was getting back in direct aid through agricultural or regional aid. That is when, using national contributions introduced the concepts of “net-takers” (or beneficiaries) and “net-payer” (or contributor) countries, the latter often claiming their money back.

 

EU Single Market benefits dwindle moneys Member States have to pay into the EU coffers (European Commission Feb. 2020)

I take this opportunity to share the above graph showing that the benefits of the Single Market alone are estimated to be 10 to 100 times whatever Member States pay into EU coffers each year.

Introducing new EU level taxes has long been advocated by the Union of European Federalists (UEF). These should be based on EU managed policies and controlled by representatives of the taxed citizen: the European Parliament. Following the report by former Italian PM and EU Commissioner Monti, European Federalists precised their views in a 2018 resolution.

We at UEF advocate in particular that the largest companies benefiting from the single EU market should pay their corporate taxes to the single manager of the market: the EU Commission.

This would avoid the most astute negotiating so-called ‘Fiscal Rulings’ with a country (see my analysis of Apple in Ireland in a previous blogpost) paying a de facto pennies rate on their benefits – to only one or two countries, to the detriment of all others. Apple for example paid to Ireland 0.01% on their global EU revenue, whilst smaller competitors pay 100 to 1000 times that rate, depending on the country where they are incorporated. This is definitely unfair competition. For example all European actors researching or producing goods to help Europe achieve one of its main objective, the so-called digital transition, compete with established companies such as Apple, Google and Amazon – all benefiting from well documented fiscal rulings in Ireland or Luxembourg (targeted by Commission enquiries).

Applying the Irish Corporate tax of 12.5%, the Eurozone most advantageous, to the some €20 billion Apple reported there, according to Euractiv, should already generate 2.5 B€. In making its proposal for the next 7 years budget deal (the so-called Multi-annual Financial Framework invented by Delors team), the Commission explored taking in taxes on EU profits of corporations having more than €750 million (Commission proposals) of global turnover.

Based on our estimations in 2018, enlarging this to the some 2000 companies having more than €1000 billion of revenue, still at the “EU best” Irish rate, would yield some 50% of the current EU budget. This would more than compensate the lost UK contribution (some 8 to 11% of the total, depending if you count multiple rebates or not) and contribute to pay for reimbursing (in the next 50 years) the Recovery Fund to be borrowed as of 2020.

Finally, this would quell all intra-EU tax optimisation efforts and much simplify life for corporations, which would stop having to hire armies of tax consultants and experts to face competition. Imagine: all would pay the same rate to Mrs Vestager, whom all trust to ensure fair play! True Ireland, Luxembourg and Netherlands would mostly lose, but currently Carrefour and FCA pay no or little tax on profits in their home countries. Populists could easily play this card, hard to understand for the average EU tax payers.

The EU should propose using the single market’s benefits to address new main EU level tasks. This would allow countering Eurosceptics and scoring European goals as, using the simple but effective vocabulary of President Trump, the current taxation is just sad and unfair.

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