Too taxing: Brussels can’t explain plan for big company levy

May 29, 2020 0 By JohnValbyNation

It looked like a bold, populist move to help fund Europe’s economic revival — a tax raid on big companies yielding €10 billion a year.

But since the European Commission unveiled the proposal Wednesday as part of its €750 billion recovery package, it has struggled to explain how the tax would work and failed to show how it came up with the revenue figure.

“We can’t give much detail,” Executive Vice President Valdis Dombrovskis, the Commission’s top economic policy official, told reporters Thursday when quizzed about the tax.

Commission officials even seemed unsure what the tax was meant to be called. The EU executive’s official documents called it a source of revenue “based on the operation of large companies.” Some commissioners referred to it as a “single market tax,” suggesting it would apply to companies that benefit most from the bloc’s internal market.

Yet the levy has been earmarked by Brussels for a potentially important role — to help the EU pay back the €750 billion that the Commission plans to raise on financial markets to power the bloc’s post-pandemic economic recovery.

Commission President Ursula von der Leyen didn’t mention the tax at all in her speech to the European Parliament on Wednesday setting out the recovery package. She cited three other possible new sources of revenue — extending the EU’s emissions trading scheme, a carbon border tax and a digital tax.

The Commission has floated versions of those ideas before, only to face resistance from national governments, which are often wary of giving Brussels more direct sources of income.

This time, the Commission is hoping to make the proposed new “own resources,” as they are known in EU jargon, more palatable to governments by suggesting they would collectively raise enough money to pay back the new borrowing — thereby removing the need to cut spending programs or raise national contributions to the EU budget to find that cash.

But six officials from multiple Commission departments that would normally be involved in drafting such a proposal said they had very little knowledge of the suggested new tax. At least some sounded cool on the idea. They said the institution’s budget team was behind it.

Budget Commissioner Johannes Hahn, however, could give only a tentative outline of the plan.

“The idea so far is that companies, which have I think on a global scale revenue of more than €750 million, should … contribute a little bit, may I say so, to the benefits they are having from the European single market,” Hahn told reporters on Thursday, noting that “a modest levy” for this access “could yield around €10 billion annually.”

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Hahn also emphasized that “we are at the beginning of a discussion process” and that the Commission is providing EU governments with a “menu” of options for new revenues.

But the Commission was not prepared to reveal the ingredients for this particular menu item. A spokesperson said: “The figure of €10 billion is a preliminary estimate calculated based on an internal methodology. The Commission is currently discussing the exact design and details will be announced when the Commission makes its proposal.”

The Commission’s answers added little to the few details provided in documents published Wednesday.

The document with most detail highlighted that some companies “draw huge benefits” from the bloc’s single market and are also set to get a lot of financial support from the EU and national governments. In return, they should “contribute to rebuilding it in the recovery phase,” the document said.

Some in-house tax experts are at a loss to explain the math behind the projected revenue.

“I don’t know how they came to that,” one Commission official said, requesting anonymity given the political nature of the recovery proposal. The Commission’s tax department, TAXUD, “should have been involved,” the official said.

Commissioners, however, say they have time on their side — as they are not proposing to start paying back the borrowed cash until after 2027.

“The paying back will come between 2028 to 2058,” Economy Commissioner Paolo Gentiloni told an event Thursday organized by strategic advisory firm Global Counsel. “We have to fight for own resources, but we have some amount of time.”

Paola Tamma contributed reporting.

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