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December 22, 2021

European Commission proposes that green levies and Pillar One help finance EU recovery fund

Executive summary

On 22 December 2021, the European Commission (the Commission) published a Communication on the next generation of the European Union (EU) own resources for the EU budget (the Communication). This follows the establishment the €750 billion EU recovery instrument (NextGenerationEU) in 2020 and the agreement to introduce new EU own resources that will generate revenues to help repay the financing of the NextGenerationEU.

The Communication outlines the Commission's proposals to use portions of revenues from the EU emissions trading system (ETS), the carbon border adjustment mechanism (CBAM), and the taxation of reallocated profits of large multinationals under Pillar One of the G20/OECD BEPS 2.0 project to finance the EU budget. The Communication provides the revenue estimates for new own resources and percentages of the revenues that will become own resources, and it details how each levy would operate as an own resource.

Together with the Communication, the Commission also published the proposal for amendments to the EU own resources decision to reflect the three new EU own resources and the proposal for revisions of the Regulation establishing the 2021 to 2027 multinational financial framework (MFF).

The Communication also mentions that the Commission will present a proposal for a second basket of new own resources by the end of 2023, which will include a Financial Transaction Tax and another own resource linked to the corporate sector.

Detailed discussion


On 27 May 2020, the Commission presented its proposal for a recovery plan from the crisis that societies and economies face due to COVID-19.1 To ensure the recovery is sustainable and fair for all EU Member States, the Commission proposed to create a new recovery instrument worth €750 billion, called NextGenerationEU. As part of the funding proposal for the instrument, the Commission proposed the introduction of EU taxes to complement the existing own resources, including:

  • New corporate tax based on operations that will be levied on companies that draw huge benefits from the EU single market and will survive the crisis
  • Digital tax for large companies
  • Tax on non-recycled plastic packaging waste
  • Carbon border adjustment mechanism
  • Emissions Trading System-based resource including a possible extension to maritime and aviation sectors

Following that, on 21 July 2020, the European Council agreed on the recovery plan and the EU budget for 2021 to 2027.2 The agreement also stated that the EU would, over the coming years, "work towards reforming the own resources system and introduce new own resources." The agreement on the new own resources followed the Commission proposal of May 2020 with two notable differences:

  • The Commission had suggested the introduction of a new own resource which would be levied on large companies that draw vast benefits from the EU single market and will survive the crisis. Such a resource is not included in the conclusions.
  • The Council agreed on the introduction of a Financial Transaction Tax as a new own resource, which was not proposed by the Commission in May 2020.

Subsequently, in December 2020, the European Parliament, the Council (i.e., the Member States) and the Commission reached an interinstitutional agreement according to which the repayment of the NextGenerationEU will have to be financed by the general budget of the Union and by sufficient proceeds from new own resources introduced after 2021. In light of this, the Commission committed to present proposals on the new own resources in 2021 with a view to their introduction at the latest by 1 January 2023.

At the same time, global negotiations were ongoing on the taxation of multinational enterprises. Building on its earlier work on Base Erosion and Profit Shifting (BEPS) that culminated in the issuance in 2015 of final reports on 15 action areas, the Organisation for Economic Cooperation and Development (OECD) in 2019 had begun a new project focused on addressing the tax challenges of the digitalization of the economy. This project evolved into a two Pillar approach to addressing the pressure put on the current international tax system due to digitalization and globalization. The current project, referred to as BEPS 2.0, is being conducted through the G20/OECD Inclusive Framework, which now has 141 participating jurisdictions. The two Pillars contained in the project are:

  • Pillar One on development of new nexus and profit allocation rules to assign more taxing rights to market countries
  • Pillar Two on development of new global minimum tax rules

The EU has been a strong supporter of a global consensus-based solution within the framework of the OECD and has embraced the course of direction of BEPS 2.0 through its participation in the G20.3 In its Communication on Business Taxation for the 21st Century,4 the Commission announced that the principal method for implementing Pillar One and Pillar Two in the EU will be through EU Directives. A proposal for a Pillar Two Directive was published by the Commission on 22 December 2021. According to a provisional agenda dated 14 December 2021,5 the publication of a proposed Pillar One Directive is expected on 27 July 2022.

Also, on 14 July 2021, the Commission presented its "Fit for 55" legislative package. Fit for 55 is a comprehensive step in overhauling EU legislation to align it with its increased climate ambitions as stated in the European Green Deal. It consists of 13 interconnected legislative proposals, including revisions of the EU ETS and an introduction of a CBAM.6

The Communication

The Communication issued on 22 December sets out Commission's plans to amend the Own Resources Decision so that part of the revenue generated by three new legislative proposals will accrue to the EU budget.

The three new own resources for the EU budget are:

  • 25% of the revenues generated by EU emissions trading. While revenues from the auctioning of emission allowances under the present EU ETS accrue largely to national budgets, the Commission is proposing that, in the future, part of the revenue from EU emissions trading flows into the EU budget. The Commission additionally proposes a temporary adjustment until 2030 to ensure a fair emissions trading-based own resource contribution from all Member States based on a gross national income key, taking into account the relative economic prosperity of individual Member States. Revenues for the EU budget are estimated at around €9 billion per year over the period 2023 to 2030.
  • 75% of the revenues generated by a CBAM. Under this proposal, Member States would be responsible for collecting revenues from the sale of CBAM certificates to declarants in order to cover the emissions of their imported goods. The Commission proposes that part of this revenue flows into the EU budget. Revenues for the EU budget are estimated at around €0.5 billion per year over the period 2023 to 2030.
  • 15% of the "share" of the residual profits of the largest and most profitable multinational enterprises that are reallocated to EU Member States under the global agreement. According to the Commission's own resources proposal, "Member States would provide a national contribution to the EU budget based on the share of the taxable profits of multinational enterprises re-allocated to each Member State under Pillar One." Revenues for the EU budget could amount to up to €2.5-4 billion per year. This proposal would replace earlier plans to introduce an EU Digital Levy. Following the high-level agreement on Pillar One in the Inclusive Framework this summer, the development of such a Levy was formally put "on hold." However, if the Inclusive Framework fails to implement Pillar One, the EU may have to reconsider introducing an EU Digital Levy to close the EU's revenue gap.

The Commission proposals will now need to be unanimously agreed by all 27 Member States and be consulted with the European Parliament with the aim of reaching agreement by 1 July 2022 in view of their introduction by 1 January 2023. That agreement would not enter into force until it is approved by the Member States in accordance with their respective constitutional requirements.

Furthermore, the Commission will present a proposal for a second basket of new own resources by end of 2023 that will include a Financial Transaction Tax and an additional own resource linked to the corporate sector. According to the Communication, this second package would build on the upcoming "Business in Europe: Framework for Income Taxation (BEFIT)" proposal, as announced in the Communication on Business Taxation for the 21st century of 18 May 2021.7


At the national level, the plans to link green taxes and BEPS 2.0 implementation with the EU budget as well as to develop new EU-wide taxes will likely prove to be controversial in some Member States. Given the complexity of the adoption processes at the EU and national level, it is difficult to predict when and in what form the various elements of the Communication will be implemented. However, given the ongoing crisis and need for recovery funds, there will be pressure to conclude on the own resource framework as soon as possible in 2022.

Taken together with the Commission's plans for a second basket of EU own resources, it is clear that the Commission has an ambitious tax agenda. EU tax policies will affect businesses across all sectors within and outside the EU. In this complex and rapidly changing EU environment, companies should closely monitor and assess the potential impact on their operations and tax strategy.


For additional information with respect to this Alert, please contact the following:

EY Société d'Avocats, Paris

Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft, Munich

Ernst & Young Belastingadviseurs LLP, Rotterdam

Ernst & Young Belastingadviseurs LLP, Amsterdam

Ernst & Young SA (Portugal), Porto

Ernst & Young LLP (United States), Global Tax Desk Network, New York



1 See EY Global Tax Alert, European Commission publishes proposal for recovery plan and adjusts 2020 Work Programme, dated 28 May 2020.

2 See EY Global Tax Alert, European Council adopts conclusions on recovery plan and EU budget for 2021-2027, including agreement on introduction of new taxes, dated 22 July 2020.

3 See EY Global Tax Alert, G20 Finance Ministers endorse 8 October BEPS 2.0 statement and call for swift implementation to secure entry into effect in 2023, dated 14 October 2021.

4 See EY Global Tax Alert, European Commission publishes Communication on Business Taxation for the 21st century, dated 18 May 2021.

5 Register of Commission Documents - SEC(2021)2401 (

6 See EY Global Tax Alert, European Commission proposes legislative package including environmental tax measures to support EU climate ambitions, dated 15 July 2021.

7 See EY Global Tax Alert, European Commission publishes Communication on Business Taxation for the 21st Century, dated 18 May 2021.