EU targets large firms to unlock budget deal

European Council President António Costa suggested narrowing a controversial business tax to only apply to large firms with a turnover exceeding €750 million per year, two EU diplomats briefed on the discussions told POLITICO.

Costa hopes these concessions will facilitate an overall agreement on new EU-wide levies, known as own resources, which have emerged as a major stumbling bloc in the ongoing negotiations.

The idea was mentioned in meetings, known as “confessionals,” between Costa’s head of cabinet Pedro Lourtie and EU governments Thursday, to test the waters on the most sensitive aspects in the negotiations.

Lourtie overhauled an unpopular corporate tax known as CORE — which charges a lump sum on companies’ revenues exceeding €100 million — that the European Commission proposed last year.

According to his proposal, the EU would charge a 0.05% levy, as opposed to a lump sum. It would also only apply to firms with an annual turnover of more than €750 million.

These changes are expected to soften opposition among a group of countries led by Germany that challenged CORE on the grounds that it undermines competitiveness and takes a toll on medium-sized enterprises.

Going further

But two diplomats fear these concessions will not be enough to muster support for the new levy. “I don’t think this is going to solve the problem on CORE,” one told POLITICO. They, like others in this story, were granted anonymity to discuss the sensitive negotiations.

France is pushing to introduce new taxes to reduce contributions to the EU budget.

In a concession to Paris, Costa’s team indicated that they won’t cut down on the total revenue projections from the Commission’s tax proposal from last year, which was expected to generate €65 billion annually.

To generate additional resources for the budget, Costa’s team also suggested increasing two largely uncontroversial taxes on non-collected plastic and electronic waste that flows directly to the bloc’s budget by levying an additional 25 cents on each kilo.

The diplomats also proposed raising the share of a carbon imports’ tax that flows to the EU cash pot to 100% from the current 75%, and exploring levies on crypto firms and national spectrum auctions.

In a further concession, Lourtie suggested phasing in two taxes on tobacco products and polluting firms, known as the Emissions Trading System, for countries that are overwhelmingly affected.

Confessional diplomacy

The bilaterals, which started Thursday and will continue until next Monday, are expected to pave the way for a budget deal by the end of 2026 — before next year’s elections in Poland, France and Italy threaten to derail the negotiations.

Costa will put forward a new budget negotiating document on Nov. 21 ahead of a special summit the following week, said the two diplomats.

During Thursday’s meetings, Costa’s team signaled that the budget would be cut further, and reductions might affect regional funding known as cohesion policy.

That would be a major setback for an alliance of Southern and Eastern European countries, known as the Friends of Cohesion.

Cuts to farmers’ subsidies were deemed less likely, said the two diplomats.