Government analysis, assessment and research activities
Researchers' conclusion on EU financing reform: Finland must promote the harmonisation of environmental and corporate taxes

A group of Finnish researchers has analysed the EU budget's new sources of income. According to the group, the mobility of tax bases, as well as the environmental impacts of production and consumption speak in favour of the harmonisation of these tax bases at the EU level. Harmonisation would allow a reform in the financing of the EU, so that it is based on new own resources collected directly from the Member State's tax bases.

The Research Institute of the Finnish Economy (Etla) and the Government Institute for Economic Research (VATT) have assessed the report for the future reform of EU financing and the suitability of the proposed taxes as new sources of income, work on which was headed by former Prime Minister of Italy and EU Commissioner Mario Monti. Economic criteria have included optimal taxation and added value from the transfer of tax revenue to the EU budget. The researcher report published today was drawn up by researchers Seppo Kari, Olli Roponen and Saara Tamminen from VATT and Niku Määttänen and Tarmo Valkonen from ETLA.

The proposal does not specify that the EU be given the right to level taxes, but according to it the union would receive an agreed upon amount of nationally collected taxes in the form of so-called new own resources. These would replace current membership fees, which are based on GNI and value added tax yields. However, Monti's report does not give the necessary attention to how these taxes will directly impact investments, employment and distribution of income. The report also does not take into account that Member States have the possibility of amending their taxation in a way that could prevent the realisation of the objectives of the EU financing reform.

The researchers suggested that Finland should promote the harmonisation of tax bases for mobile profits as well as environmental and energy taxes and set minimum tax rates.

"We recommend the harmonisation of the corporate and environmental tax bases and minimum tax rates regardless of the outcome of the financing reform. At minimum, the complex VAT-based own resource should be removed, as should country-specific corrections," says Research Advisor Tarmo Valkonen from Etla, who has headed the project. 

According to the researchers, the most promising of the new own resources assessed in Monti's report were carbon dioxide levy, which completes emission trade, the Common Consolidated Corporate Tax Base (CCCTB) and the Financial Activities Tax (FAT). The researchers were not in favour of the introduction of a tax on financial market transactions.

According to the researchers' calculations, Finland's relative share of financial contributions would decrease, if the current VAT-based own resource and country-specific corrections were eliminated. Similarly, the introduction of own resources based on the financial sector's added value would curtail the financial contribution.  In the absence of data on the corporate tax base and more specific environmental tax proposals estimates, no estimates on Finland's financial contribution could be presented for these areas.  

The publication was written as part of the implementation of the Government plan for analysis, assessment and research activities for 2017.

Common or own goals: Reforming the financing of the European Union

More information about the Government’s analysis, assessment and research activities is available at tietokayttoon.fi

Inquiries: Research Advisor Tarmo Valkonen, ETLA, tel. +358 50 329 6014, tarmo.valkonen(at)etla.fi; Research Leader Seppo Kari, VATT, tel. +358 295 519 419, seppo.kari(at)vatt.fi and Senior Researcher Saara Tamminen, Government Institute for Economic Research, tel. + 358 295 519 450, saara.tamminen(at)vatt.fi