Brussels 'proposes' new EU-wide VAT

The options listed are not definitive and are intended to serve as a basis for discussion when the EU launches negotiations next year over its next long-term budget for 2014-2020.

"The Commission does not believe that the current mix [of resources] is appropriate," reads a note issued by the EU executive which underlines that almost 90% of the budget is directly funded by member states.

"Not only does this go against the spirit of the Treaties but this gave birth to the bitter debates about 'net contributors' and the complex concepts of rebates" which have been awarded to the UK, but also to Sweden, the Netherlands, Austria and Germany, argues the Commission.

This situation tends to favour "instruments with geographically pre-allocated financial envelopes rather than those with the greatest EU added value," the Commission concludes.

In view of this, Brussels is proposing to increase its own resources for the next long-term budgetary period in 2014-2020. In other words, the Commission wants funds which it can obtain directly instead of depending on member states for financial support.

Indeed, the global economic downturn has put member states' budgets under pressure, leading to austerity measures in almost every EU country, and Brussels is likewise urged to reduce its expenses.

Towards an EU VAT?

One of the Commission's most surprising proposals concerns the introduction of an EU Value Added Tax (VAT). Currently Brussels applies a levy on national VATs, which brings in something like €14 billion per year, but it reduces member states' incomes. 

The proposal foresees replacing the current levy with a direct EU VAT. This would lower the burden on member states, although it is likely to increase the burden on citizens. 

In an annex to the proposal, the Commission says that if the VAT were applied at a 1% rate across the EU, "combined with elimination of the existing VAT-based resource," it would bring to the EU coffers something like €41 billion a year. These figures result from a study carried out in 2004.

Other options

"The Commission puts forward the option of reducing member states' contributions by abolishing the VAT-based own resource and progressively introducing one or several new own resources as a replacement," reads a note from the EU executive.

The list of alternative 'own resources' suggested by the Commission is long, but "non-exhaustive," says the Commission.

A possible candidate for new own resources could be a share of a financial transaction or financial activities tax. Of the two, the first appears unlikely to be applied, as the Commission itself made clear at the beginning of October, while the second option also seems controversial.

Another option involves collecting the financial benefits of "auctioning greenhouse gas emission allowances". "An EU charge related to air transport" is also under consideration, following similar moves adopted in some member states.

"A share of an EU energy tax or of an EU corporate income tax" was proposed as well but opposition will likely be strong.