Von der Leyen’s plan to tax EU business looks dead on arrival

BRUSSELS ―The European Commission’s plan to slap a tax on moderately large businesses in the EU seems unlikely ever to see the light of day.

Governments across the continent and the European Parliament ― all of which need to approve the plan ― are already lining up to dismiss it.

The tax — that Commission President Ursula von der Leyen announced Wednesday as part of the EU’s next long-term budget — would raise €6.8 billion a year. The idea is that it would be a fresh source of revenue to fund EU programs and repay Covid-era debts.

But with the ink on the policy barely dry, Germany and the Netherlands appeared to deliver a fatal blow. 

“There is no question of the European Union taxing companies, as the European Union has no legal basis for this,” Merz said during a joint press conference with British Prime Minister Keir Starmer in London. “We are not doing that.”

The added twist is that Merz and von der Leyen hail from the same German Christian Democrat party.

And a spokesperson for the Dutch government told POLITICO that “for the Netherlands, this is not up for discussion,” insisting on the need for the EU to shrink its budget rather than add to it.

It’s not just northern EU countries ― those that are traditionally averse to greater EU spending ― that object. One diplomat from a less fiscally frugal southern country told POLITICO it would be “difficult” for the plan to survive.

Members of the European Parliament, who would need to approve the plan along with member countries, were also unimpressed.

European People’s Party lawmaker and vice chair of the budget committee Monika Hohlmeier said the tax “stands in stark contrast to our efforts to strengthen the competitiveness of European companies — particularly mid-cap firms.”

“These are precisely the businesses we are actively supporting through a substantial Competitiveness Fund aimed at driving innovation, boosting productivity, and reinforcing the EU as an attractive global investment hub,” she said.

European People’s Party lawmaker and vice chair of the budget committee Monika Hohlmeier | Daniel González/EPA

Her view is particularly important as the center-right EPP is the biggest party in the Parliament and the most powerful political group in Brussels. The EPP dominates the College of Commissioners, and von der Leyen herself is a member.

How it works

The proposed tax would apply to companies with more than €100 million in revenue — and would be paid, controversially, whether the firm is turning a profit or not.

The €100 million turnover figure isn’t as large as it might look — big banks can rake in more than 500 times that in a year.

The tax is proposed as a flat fee rather than a percentage of earnings. Firms with a net turnover of between €100 million and €250 million will pay a flat €100,000, rising to a maximum of €750,000 for companies with revenues above €750 million, according to the legislative text published by the Commission.

That means a business taking in €750 million a year in revenue would pay the same as one taking in €75 billion. The tax is expected to raise €6.8 billion a year, making it an important contributor to the nearly €60 billion in direct annual tax revenues the EU hopes to receive from 2028.

Alessandro Ciriani, a former minister in Giorgia Meloni’s Italian government and now an EU lawmaker for her Fratelli d’Italia party, said the proposal was “at odds with the will of a majority part of the Parliament.”

“That’s an obvious paradox to talk about supporting our productive sector and then mowing it down with the fiscal blade,” he said.

Companies also hate it.

Ursula von der Leyen has made “competitiveness” the flagship brand of her second term, and the tax on corporations is a political hard sell. | Olivier Matthys/EPA

Markus J. Beyrer, director general at EU business lobby BusinessEurope, called the proposal “totally counterproductive,” while Stefan Pan, vice president at Italian Confindustria, said the €100 million turnover figure “risks hampering the growth of innovative companies.”

Tanja Gönner, director general of the Federation of German Industries, called on Berlin to take a firm stance against the proposal, arguing that it’s “at odds with the EU strategic objectives.”

‘Very bad’ idea

The idea of taxing turnover instead of profits is “very bad,” said Zsolt Darvas, a senior fellow at think tank Bruegel. One problem is that it hits sectors with very different profit margins.

Another issue is that the tax is regressive, putting firms with different financial conditions in the same basket. “It is not correct, it’s just not fair,” Darvas said. “It is probably the worst option.”

Many also objected to the fact that it seems diametrically opposed to the goal of industrial competitiveness. Von der Leyen has made “competitiveness” the flagship brand of her second term, and the tax on corporations is a political hard sell. Especially in Berlin.

Germany is going through a period of economic stagnation following a two-year recession. Its economic doldrums are forcing the government to rethink its fiscal stance completely in the middle of a trade war with the U.S., putting its export-driven economic model even more at risk.

Officials from the Economic Affairs Ministry had already warned that their assessment of the EU budget revenues would depend on how the competitiveness of the European economy is treated.

That’s not to say there’s no rationale for the tax. Companies from both Europe and third countries benefit from trading inside the bloc, and as French lawmaker Fabien Keller from the liberal Renew group put it, “that is directly linked to an EU public good: the single market. Without the EU, no seamless trade on the biggest single market in the world.”

But with such vociferous opposition from member countries and lawmakers, von der Leyen’s proposed tax has little hope of surviving in its current form.