The measure was preceded by the agreement among 141 countries – among them the United States – that are members of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) on a reform of the international tax framework closed in October 2021. BEPS is a two-pillar solution to tackle tax avoidance and aims at ensuring that profits are taxed where economic activity and value creation occur.
The signatory countries represent more than 90% of global GDP. “Pillar One” of this agreement will reallocate the right to tax a share of so-called residual profits from the world's largest multinational enterprises to participating countries worldwide. The Commission proposes its own resource equivalent to 15% of the share of the residual profits of in-scope companies that are reallocated to the EU Member States.
As an answer to the unprecedented pandemic challenge, the European Union agreed in 2020 on a record stimulus package of more than €2 trillion – boosting the long-term budget with more than €800 billion firepower of the temporary recovery instrument “NextGenerationEU” (in current prices).
With NextGenerationEU, the Commission has been enabled to issue bonds on a large scale backed by the EU budget. That means the EU can incur debt supporting all Member States to fight the crisis and build resilience. To help repay the borrowing, the EU institutions agreed to introduce new resources as this would allow more diversified and resilient types of revenue, directly related to common political priorities. New resources will avoid NextGenerationEU repayments that would lead to undue cuts to EU programs or excessive increases in Member States contributions.
Foundation for repayment of NextGenerationEUIn 2021, the Commission raised €71 billion (in current prices) via long-term bonds and currently has €20 billion of short-term EU-Bills outstanding under a sovereign-style diversified funding strategy. The new proposed resources should help repay the funds raised by the EU to finance the grant component of NextGenerationEU. The new proposed resources should also finance the Social Climate Fund.
At cruising speed, in the years 2026-2030, these new sources of revenue are expected to generate an average of €17 billion annually for the EU budget.
The latter is an essential element of the proposed new Emissions Trading System covering buildings and road transport, and will contribute to ensuring “that the transition to a decarbonized economy will leave no one behind.”
“With today's package, we lay the foundations for the repayment of NextGenerationEU and provide essential support to the “Fit for 55 Package” by putting in place the financing of the Social Climate Fund,” stressed Johannes Hahn, the Commissioner in charge of Budget and Administration. He said further, “With the set of new own resources, we, therefore, ensure that the next generation will truly benefit from NextGenerationEU.”
The proposal builds on the Commission's commitment undertaken as part of the political agreement on the 2021-2027 long-term budget and the NextGenerationEU recovery instrument. Once adopted, this package will strengthen the reform of the revenue system started in 2020 with the inclusion of the non-recycled plastic waste-based own resources.