Costa Proposes Limiting Business Tax to Large Firms in New Concessions to Unlock EU Budget Deal

European Council President António Costa has suggested narrowing a controversial business tax to apply only to large firms. Two EU diplomats briefed on the discussions told POLITICO this.

Under the proposal, the tax would apply only to firms with annual turnover exceeding €750 million. Costa hopes these concessions will facilitate an overall agreement on the bloc's next long-term budget.

New EU-wide levies, known as own resources, have emerged as a major stumbling block in the ongoing negotiations. The idea was mentioned in meetings known as 'confessionals' between Costa's head of cabinet Pedro Lourtie and EU governments on Thursday, to test the waters on the most sensitive aspects of the negotiations.

Lourtie overhauled an unpopular corporate tax known as CORE, which the European Commission proposed last year. That proposal charged a lump sum on companies with revenues exceeding €100 million.

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

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

But two diplomats fear these concessions will not be enough to muster support for the new levy. One told POLITICO, 'I don't think this is going to solve the problem on CORE.' 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 they will not cut down 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 flow 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 percent from the current 75 percent, 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.

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 21 November ahead of a special summit the following week, the two diplomats said.

During Thursday's meetings, Costa's team signalled 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, the two diplomats said.