As part of its European Union budget plan for the next cycle (2028-2034), published 16 July, the European Commission proposed a number of new revenue sources. These are mostly reasonable, with one exception: the so-called Corporate Resource for Europe (CORE).
CORE would see companies with a net turnover of at least €100 million make annual fixed payments into the EU budget, ranging from €100,000 to €750,000 depending on their turnover bracket. Both EU and foreign companies with a permanent establishment in the EU would pay. The Commission argues that CORE would ensure the corporate sector, a major beneficiary of the EU’s single market, contributes to the common budget.
Levies on net turnover are simple to administer, less prone to profit-shifting and offer more stable, predictable revenue than profit-based taxes. But they are also inefficient and distortionary because they tax revenue rather than profit, ignoring firms’ costs. Such levies impose the same burden on firms with vastly different profit margins.
For example, financial services, oil and gas distribution and semiconductor equipment have net profit margins of 20% or above in the EU, while others including chemicals, food wholesalers and retail services have margins close to zero. Some companies may not be profitable at all. A 0.1% turnover tax equals a 0.5% profit tax for companies operating with a 20% margin, but a 5% profit tax for companies with only a 2% margin.
Moreover, because such levies in effect tax each production stage without allowing deductions for inputs, they create a phenomenon known as tax cascading, with the tax burden compounding as goods move through the supply chain. This brings several risks: higher consumer prices, discouragement of specialisation and encouragement for firms to integrate vertically to minimise tax liability, undermining competition and reducing economic efficiency.
Though the proposed CORE lump-sum amounts are progressive in that they increase with turnover brackets, they are strongly regressive within each bracket, with the effective rate declining sharply as turnover rises. For example, companies with turnovers between €100 million and €250 million would all pay a levy of €100,000: a 0.1% effective rate for a company with €100 million in turnover, but just 0.04% for a company with close to €250 million in turnover.
As the top bracket, starting at €750 million in turnover, is open-ended, the differences in effective rates for large companies would be even starker. A company with turnover of €10 billion would face a 0.008% tax rate – a trivial share of their turnover. Such a structure risks undermining the competitiveness of smaller firms, which would face disproportionately bigger burdens than their larger counterparts.
New instruments to raise EU budget revenues are justified only if they help achieve EU policy objectives and do not introduce distortions. Other European Commission proposals for new budget resources (eg levies on tobacco and non-collected electronic waste), also put forward 16 July, are more promising in this respect. A defence spending shortfall levy would also foster EU objectives – this would be a levy calculated on the basis of national underspending in defence, in the context of the need to raise military spending. CORE, meanwhile, would create distortions – and the CORE proposal should therefore be scrapped.
The discussion around CORE should not distract from the crucial issues in the next multiannual EU budget: its size and composition, which must be determined by spending priorities. Ultimately, the bulk of the EU budget is financed by national taxpayers. Whether the funding comes from new revenue sources or from the default gross national income-based contributions will determine the distribution of the financial burden across EU members.
About the Authors
Zsolt Darvas is a Senior Fellow at Bruegel and a part-time Senior Research Fellow at the Corvinus University of Budapest.
Roel Dom is a Research Fellow at Bruegel, as well as a visiting professor at the University of Antwerp.
Marie-Sophie Lappe is a Research Assistant at Bruegel.