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Legislative package for the system of Own Resources of the European Union after 2020

In “An Economy that Works for People”

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In May 2018, the European Commission proposed changes in the financing system of the EU budget for the period after 2020, with a view to simplifying it and enhancing its link to EU policies. The general provisions were included in a proposal for a Council Decision on the system of Own Resources of the European Union, while an accompanying proposal for a Council Regulation laid down implementing measures for the system. In addition, proposals for two further Council Regulations contained operational provisions.

Three different procedures apply: the European Parliament (EP) is consulted on the Decision, which is to be adopted unanimously by the Council and ratified by all Member States; the Regulation on implementing measures requires the EP’s consent before Council can adopt it by a qualified majority; and the Council adopts the Regulations on operational provisions by a qualified majority after consulting the EP and the Court of Auditors. According to the EP, the proposals for the post-2020 Multiannual Financial Framework (MFF) and own resources should be negotiated as a single package.

In 2018, Council Decision 2014/335/EU set out the general provisions of the own resources system, applying indefinitely. However, the withdrawal of the UK from the EU and the potential contribution of the revenue side of the EU budget to wider EU objectives made the case for a new decision to be adopted. The EP, which deemed the system opaque and unfair, had long pushed for its reform, calling for the introduction of new genuine own resources and the elimination of all correction mechanisms. The final report of the High-Level Group on Own Resources included recommendations for changes along these lines.

The Commission's proposal would modify the own resources system in five ways:

(1) It would simplify existing own resources: at present, Member States, which are responsible for collecting traditional own resources (mainly customs duties) on behalf of the EU, retain 20 % of what they collect to cover costs. The proposal would reduce this share to its traditional level of 10 %. The VAT-based own resource would be retained, but the complex formula used to calculate it would be simplified. The GNI-based resource, which is perceived as a national contribution, would be retained as a balancing resource, but its relative importance would be reduced in the revenue mix.

(2) It would introduce three new own resources linked to EU policies: an own resource based on a Common Consolidated Corporate Tax Base (CCCTB), linked to the Single Market; a share of the revenues generated by the EU Emissions Trading System (ETS), linked to the fight against climate change; and a national contribution based on the quantity of non-recycled plastic packaging waste generated in each Member State, linked to environmental objectives. According to the Commission, these new resources would jointly account for 12 % of EU revenue over the 2021-2027 period, correspondingly reducing the share of the GNI-based resource.

(3) It would 'establish the principle' that 'future revenues arising directly from EU policies should flow to the EU budget': the Commission maintains that the revenue arising from EU policy should accrue to the EU budget by default, with this principle guiding choices made about any future EU revenue streams.

(4) It would phase out all correction mechanisms, which have often been criticised as a source of opacity for the system: the Commission has proposed a phasing-out of the correction mechanisms currently granted to Austria, Denmark, Germany, the Netherlands, and Sweden over a five-year period. The elimination would be gradual to avoid a 'significant and sudden increase' in the contributions of those countries.

(5) It would increase the own resources ceiling: the ceiling on annuals calls for own resources from the Member States is currently set at 1.20 % of the EU's total gross national income (GNI). The Commission proposes to raise this ceiling to 1.29 %, to take account of the smaller total GNI of the post-Brexit EU; the resources necessary to cover liabilities linked to the increasing use of instruments guaranteed against the EU budget; and the integration of the European Development Fund into the MFF.

In 2018, the EP welcomed the proposals on EU revenue as an important step, supporting even more ambitious reform. It invited the Commission to take into account an opinion of the Court of Auditors, which highlights the need for further simplification and better calculation. In 2019, the newly elected EP confirmed its negotiating mandate on the MFF and own resources, reiterating its view that expenditure and revenue should be treated as a single package in the negotiations.

In 2018 and 2019, successive presidencies of the Council carried out preparatory work on the MFF package. In July 2019, the Council debated the state of play of the discussions on the own resources system. Significant differences of views persisted. In December 2019, the Finnish Presidency presented an MFF negotiating box and the European Council discussed it, calling on its President Charles Michel to take the negotiations forward.

A special European Council devoted to the next MFF took place on 20-21 February 2020. In the European Council President's negotiating box, two possible new own resources were mentioned: a share of the revenues generated by the ETS; and a national contribution linked to non-recycled plastic packaging waste. However, no agreement on the MFF package was found at the level of Heads of State or Government.

Presented on 27 May 2020, the Commission's recovery plan from the consequences of the coronavirus pandemic implies some changes in the proposed reform. The own resources ceiling would be raised permanently to 1.4% of EU GNI and temporarily to 2%. The temporary component of the ceiling corresponding to 0.6% of EU GNI would last until 2058 and exclusively serve to ensure the financing of Next Generation EU (NGEU), the European recovery instrument. The Commission envisages additional proposals for new own resources, e.g. a carbon border adjustment mechanism and a digital tax, with a view to contributing to the repayment of the resources borrowed under Next generation EU. The elimination of corrections would be more gradual.

In the second longest European Council meeting ever (17-21 July 2020), Heads of State or Government reached political agreement on a package combining the new MFF, the recovery instrument and own resources. The own resources ceiling will be modified as proposed by the Commission. It will rise permanently from 1.20 % to 1.40 % of the EU GNI, while a temporary increase in the ceiling, worth a further 0.60 % of EU GNI, will be devoted exclusively to borrowing operations for NGEU and apply until December 2058 at the latest. This temporary increase enables the Commission to borrow on a much larger scale than in the past. A new own resource based on non-recycled plastic waste will be introduced as of January 2021, which should be a first step in a broader reform. The European Council invites the Commission to make proposals for other new own resources: a border carbon adjustment mechanism and a digital levy (with a view to their introduction by January 2023), and a revised proposal linked to the EU ETS. In addition, the EU will work on the introduction of other own resources, which may include a Financial Transaction Tax. The proceeds of new own resources introduced after 2021 will be used for early repayment of NGEU borrowing. Contrary to the Commission proposal, the corrections that reduce the contributions of five Member States (Austria, Denmark, Germany, the Netherlands and Sweden) to the EU budget will not be phased out, but maintained for the entire 2021-2027 period and, overall, increased. In addition, the collection costs that Member States retain on customs duties will rise from 20 % to 25 %.

On 23 July 2020, reacting to the political agreement, the European Parliament reiterated that it will not give its consent for the MFF without an agreement on the reform of the EU’s own resources system, including the introduction of a basket of new own resources by the end of the 2021-2027 MFF, which should aim to cover at least the repayment costs of NGEU. Parliament stressed that the plastics contribution only represented a first partial step in this direction, and expressed its intention to negotiate a legally binding calendar for the introduction of additional new own resources in the course of the first half of the next MFF (e.g. resources linked to: the ETS, a Carbon Border Adjustment Mechanism, a digital tax, a Financial Transaction Tax or FTT and a CCCTB). Reaffirming that all corrections should be terminated as soon as possible, Parliament deplored the fact that the European Council has not only retained, but has even increased the rebates benefiting some Member States.

During its September 2020 plenary part-session, Parliament adopted its legislative opinion on the own resources system (consultation procedure), with a view to expediting the launch of the borrowing operations of NGEU. Parliament reiterated its call for a binding timetable for the introduction of new own resources to be included in the interinstitutional agreement on budgetary matters.

Key initiatives planned for 2021 by the Commission include legislative proposals for a digital levy and a carbon border adjustment mechanism.

On 10 November 2020, Parliament and Council negotiators reached political agreement on the MFF, including the incorporation of a roadmap for new own resources in the new interinstitutional agreement on budgetary matters. The roadmap includes: an ETS-based resource (from 2023, possibly linked with a carbon border adjustment mechanism); a digital levy (from 2023); an FTT-based resource (from 2026); and a financial contribution linked to the corporate sector or a CCCTB (from 2026).

On 14 December 2020, the Council adopted the new Own Resources Decision. On 30 April 2021, the Council adopted the package of implementing legislation accompanying the decision, following the European Parliament's vote in March 2021.

By 31 May 2021, all Member States had notified the Council of their ratification of the Own Resources Decision. On 1 June 2021, Council Decision (EU, Euratom) 2020/2053 entered into force, enabling the Commission to start the borrowing operations for the Next Generation EU recovery instrument. The new own resources system retroactively applies from 1 January 2021.

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Author: Alessandro D'Alfonso, Members' Research Service, legislative-train@europarl.europa.eu

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As of 20/05/2023.