Year LXII, 2020, Single Issue, Page 135






In order to understand how the European Union is financed, and thus identify the political and institutional interventions needed in order to create the conditions for an adequate European budget, we first have to distinguish between two key aspects:

  • The procedure through which the resources available to the Union are decided;
  • The type of resources available to the European Union.

It is therefore necessary to understand whether the European Union is financed independently of the member states through European taxes, and thus already endowed with fiscal competence; and whether the creation of new European own resources would automatically swell the EU budget, effectively giving the European Union true fiscal capacity.

Finally, it is necessary to examine, briefly, the link between fiscal capacity, democracy and political sovereignty.

The Procedure for Deciding the Resources Available to the Union. 

With regard to this aspect, reference must be made to Article 311 TFEU, according to which

“The Union shall provide itself with the means necessary to attain its objectives and carry through its policies.

Without prejudice to other revenue, the budget shall be financed wholly from own resources.

The Council, acting in accordance with a special legislative procedure, shall unanimously and after consulting the European Parliament adopt a decision laying down the provisions relating to the system of own resources of the Union. In this context it may establish new categories of own resources or abolish an existing category. That decision shall not enter into force until it is approved by the Member States in accordance with their respective constitutional requirements.

The Council, acting by means of regulations in accordance with a special legislative procedure, shall lay down implementing measures for the Union's own resources system in so far as this is provided for in the decision adopted on the basis of the third paragraph. The Council shall act after obtaining the consent of the European Parliament.

Thus, the procedure for determining both the revenue ceiling (and thus also the expenditure ceiling, given that the Union budget, as provided for in Article 310 TFEU, must be in balance), and the type of resources to be paid into the budget consists of a decision of the Council acting unanimously, which must then be approved by each individual member state in accordance with its respective constitutional requirements. The European Parliament is only consulted, i.e. it is only called upon to give a non-binding opinion.

It follows that:

  1. the amount and type of the said resources depend on the member states’ unanimous consensus expressed both at supranational level (through a unanimous decision of the Council) and at national level (through approval by each individual member state in accordance with its respective constitutional requirements);
  2. the decision on the amount and type of the resources is not a decision taken by the institutions of the Union independently of the member states, given that its entry into force is subject to their approval at national level.

The Type of Resources Available to the European Union.

The 1957 Treaty establishing the European Economic Community stipulated that the budget revenue would consist of contributions paid by the member states, but it was already envisaged that the Commission would study the conditions under which those contributions could be replaced by own resources. To this end, the Commission was to submit proposals to the Council, and the Council, acting unanimously after consulting the Assembly, would recommend their adoption by the member states in accordance with their respective constitutional requirements.

The first Own Resources Decision dates back to 1970, and it introduced customs duties, agricultural levies and a percentage (up to a maximum of 1%) of value added tax as sources of financing for the Union, the latter becoming an effective own resource only from 1975 onwards. A 1988 Own Resources Decision later added a fourth resource, consisting of a percentage of the member states’ GNI.

The four own resources mentioned above are not homogeneous. Indeed:

the so-called fourth resource, i.e. the percentage of the member states’ GNI (which today finances almost 70% of the EU budget) does not differ in any way from the member states’ contributions through which the EEC was financed in its early years. Therefore, it is inaccurate to call it an “own resource”.

Among the resources available to the Union, customs duties and agricultural levies are the most “own” in character, in the sense that they are closely linked to the Union’s powers, are paid in full into the Union budget, and their amount is not stipulated in advance. Member states are allowed to withhold up to 20% of the amount of these duties and levies to cover the related collection costs.

The percentage of value added tax is a “weak” own resource, and can in some ways be likened to state contributions: it is not linked to the exercise of the Union’s powers, and in fact the states pay only a share of their VAT revenue into the EU budget. In short, the percentage value is predetermined by the Own Resources Decision adopted by the Council and approved by the member states.

— These resources do not go directly into the EU budget, but are collected by the member states and appear in their budgets. And it continues to be the task of the member states “to undertake prosecutions and proceedings for the purpose of the system of levies and refunds”[1] and “to take steps to this end vis-à-vis the parties involved”. Thus, the Union also lacks coercive means of obtaining payment of the resources.

Is the European Union Financed Independently of the Member States Through European Taxes, and Thus Already Endowed With Fiscal Competence?

As clarified by the Commission’s Green Paper of November 1978 entitled Financing the Community budget: the way ahead,[2] it is evident that any resource, to be deemed a true own resource, “has a fiscal nature, must be a direct charge on individuals or companies in the Community, and be independent of decisions by the Member States; there must also be an automatic link between the Community and the source of revenue, i.e. each economic operation on which the Community tax is levied. Even if the own resource is collected by the Member States, this is done on the Community’s account. The revenue is not part of the income of the Member States and ought not to need to be either incorporated into their national budgets or voted by national parliaments”.

Explaining the issue even more clearly, the 2016 Monti report on own resources underlined that, before talking about European taxes (and therefore the fiscal capacity of the Union), it is necessary to introduce a fiscal competence of the Union, in such a way that the European Parliament is given real power to levy taxes, without being subject to any fixed ceiling on expenditure. Therefore, a European tax should be decided and levied by the European Union and its amount should be determined by the Union legislator. This tax should then be paid directly into the Union budget. This possibility, the Monti report underlines, is not provided for in the Treaties, and therefore the Union should first and foremost be granted the power to levy taxes.[3]

If we analyse the existing own resources in the light of the above definitions of a European tax, it is clear that none of them constitutes a true European tax. Even the most typical own resources, i.e. customs duties and agricultural levies, are decided by the Council unanimously and approved by the member states in accordance with their respective constitutional rules; moreover, they form part of the budget revenue determined by the above-mentioned procedure, and the Union has no coercive means of obtaining their payment, since the task of and responsibility for collecting these dues lies with the member states.

Would the Creation of New Own Resources Automatically Increase the Size of the EU Budget and Lead to the EU Acquiring Fiscal Capacity?

The key factors making it possible to say that an entity has fiscal capacity, and can therefore finance itself independently, are:

1) that it has the power to decide on revenue and expenditure independently of its component territorial authorities (member states or regions);

2) that this power of taxation is exercised directly on natural persons and legal entities and not via the member states.

If this is not the case, and the link between member states and own resources remains intact, this entity cannot be said to have autonomy or, therefore, fiscal sovereignty.

The various proposals to create new own resources to be allocated to the Union budget, at the same time increasing its ceiling, do not have the effect of creating fiscal capacity, for two reasons: first, because the resources in question do not have the characteristics mentioned above, and second, because their creation falls within the framework of the mechanisms currently laid down in the Treaties: they are not decided autonomously by the Union, but instead by the member states; in particular, the Union does not have the right to demand them directly from natural persons and legal entities, since its decisions are directed at the states.[4]

Furthermore, given that it is in the member states’ interest to reduce the percentage of GNI that they are required to pay into the Union budget (the so-called fourth resource), the introduction of new fiscal own resources, in addition to being decided not by the Union autonomously, but rather by the member states, would be unlikely to have the effect of automatically increasing the Union budget, except, at best, only marginally. After all, the member states would be keen the ceiling of the budget unchanged, in order to reduce their direct contribution to it.

The vicissitudes surrounding the financial transaction tax are instructive in this regard. Even had the directive establishing this tax eventually been approved (through the enhanced cooperation mechanism), payment of this resource into the Union budget would have depended on the Own Resources Decision being unanimously approved first by the Council and then by the member states. And while the relative Commission proposal stipulated that a share of the financial transaction tax levied at national level would be paid into the EU budget, it also specified that that the GNI-based resource drawn from member states participating in the enhanced cooperation would be reduced accordingly.

Fiscal Capacity, Democracy and Political Sovereignty.

Overcoming the current system of EU funding is closely linked to the issues of democracy and political sovereignty. Fiscal power is one of the key prerogatives of a parliament, i.e. the representative body of the citizens, and the European Parliament’s lack of fiscal power is one of its main limitations.

To require that the state’s representatives in the Council and at national level decide unanimously what resources should be available to the EU, leaving the Parliament solely the power only to express an opinion, goes against every rule of democracy. The states’ representatives derive their democratic legitimacy from the national electorate, to which they are accountable. To claim that these representatives should be the ones determining the Union’s resources betrays an unwillingness to identify a common interest of the European citizens — an interest that only the European Parliament, their true representative body, is entitled to express. Fiscal sovereignty of the European Union therefore goes hand in hand with the building of supranational democracy.

On this basis, it can be argued that conferring the power to institute a European tax would amount to granting the European Union political legitimacy. This tax — taxes being an intimate attribute of sovereignty — would allow the European Union to start acting as a “sovereign” entity carrying out political functions that further the pursuit of the general good of society.[5]

A Proposal for Amendment of Articles 310, 311 and 312 TFEU.

To establish an autonomous European fiscal capacity based on effective power of taxation in the hands of the European Parliament, it is necessary, first and foremost, to amend articles 310, 311 and 312 TFEU, which govern the budget of the European Union.What follows, therefore, is a targeted proposal, which aims to highlight the first necessary step for a more comprehensive reform. Transitioning to true European political sovereignty is a highly complex process, in the face of which it is crucial to have a clear understanding of all the objectives central to overcoming the obstacles that, still today (and notwithstanding the achievements already recorded by the European Union), prevent its realisation. The first objective is, in fact, the attribution of autonomous fiscal power to the European institutions, the conditio sine qua non to allow the development of real supranational powers of government in sectors and policies identified on the basis of the subsidiarity principle.[6]

As already indicated, these are amendments that must necessarily be accompanied by a broader Treaty revision process (leading to a full and coherent new Treaty of a constitutional  nature) that addresses the need to strengthen the EU’s competences (certainly in the economic, health, migration, foreign and security policy, research and training sectors) and reform decision-making mechanisms to ensure the full co-decision of the European Parliament and the abolition of unanimity voting in the Council and of national vetoes. The Conference on the Future of Europe, with input from the national parliaments and European citizens alongside the European Parliament, may offer the framework in which to address this political debate of constitutional significance, essential for the birth of a genuine federal political union.

The European Parliament itself is already moving in this direction, both in its resolutions on the Conference on the future of Europe and, recently, with its approval of the legislative resolution concerning the system of own resources,[7] which includes a passage specifying that: “In view of future deliberations about treaty changes, and using the momentum of the Conference on the Future of Europe, the democratic legitimacy, accountability, resilience and alignment with major policy objectives of the Union budget’s revenue side should be further strengthened by granting the European Parliament enhanced competences in the legislative decision making and a more active role in the monitoring of the implementation of the own resources system as well as in the underlying sectoral legislation” following the opinion expressed by AFCO (the Committee on Constitutional Affairs) at the request of the Committee on Budgetary Control. 


Treaty on the Functioning of the European Union

 A proposed Reworking of Articles 310, 311, 312 to Give the European Union True Fiscal Capacity

Art. 310

  1. All items of revenue and expenditure of the Union shall be included in estimates to be drawn up for each financial year and shall be shown in the budget.
    The Union’s annual budget shall be established by the European Parliament and the Council in accordance with Article 314.
  2. The expenditure shown in the budget shall be authorised for the annual budgetary period in accordance with the regulation referred to in Article 322.
  3. The implementation of expenditure shown in the budget shall require the prior adoption of a legally binding Union act providing a legal basis for its action and for the implementation of the corresponding expenditure in accordance with the regulation referred to in Article 322, except in cases for which that law provides.
  4. The Union shall ensure the budget respects the multiannual financial framework referred to in Article 312.
  5. The budget shall be implemented in accordance with the principle of sound financial management. Member States shall cooperate with the Union to ensure that the appropriations entered in the budget are used in accordance with this principle.
  6. The Union and the Member States, in accordance with Article 325, shall counter fraud and any other illegal activities affecting the financial interests of the Union.

Art. 311

The Union shall provide itself with the means necessary to attain its objectives and carry through its policies.

To this end, the Union may establish fiscal own resources and take out loans.

The following are understood as own resources of the European Union: a) direct charges levied by the Union, according to the procedure provided for by Art. 311 bis, on production or on the imports of goods and services by businesses or citizens of the European Union; b) contributions to the European budget made by member states on the basis of national taxes harmonised in accordance with the provisions of art. 113 TFEU.The member states’ contributions to the budget will gradually be replaced by fiscal resources allocated directly to the Union budget and determined in the decision pursuant to art. 311 bis TFEU.

Art.311 bis

The European Parliament and the Council, acting in accordance with the ordinary legislative procedure, shall adopt a decision laying down the provisions relating to the Union’s own resources. In this context it may establish new categories of own resources or abolish an existing category.

The Council, acting by means of regulations in accordance with a special legislative procedure, shall lay down implementing measures for the Union’s own resources system in so far as this is provided for in the decision adopted on the basis of the third paragraph. The Council shall act after obtaining the consent of the European Parliament.

Art. 312

  1. The multiannual financial framework shall ensure that Union expenditure develops in an orderly manner and within the limits of its own resources.
    It shall be established for a period of at least five years.
    The annual budget of the Union shall comply with the multiannual financial framework.
  2. The Council shall, in accordance with a special legislative procedure and after obtaining the consent of the European Parliament, which acts by a majority of its component members, adopt a regulation laying down the multiannual financial framework.
  3. The financial framework shall determine the amounts of the annual ceilings on commitment appropriations by category of expenditure and of the annual ceiling on payment appropriations. The categories of expenditure, limited in number, shall correspond to the Union's major sectors of activity.
    The financial framework shall lay down any other provisions required for the annual budgetary procedure to run smoothly.
  4. Where no Council regulation determining a new multiannual financial framework has been adopted by the end of the previous financial framework, the ceilings and other provisions corresponding to the last year of that framework shall be extended until such time as that act is adopted.
  5. Throughout the procedure leading to the adoption of the financial framework, the European Parliament, the Council and the Commission shall take any measure necessary to facilitate its adoption.

Giulia Rossolillo

* A reflection paper supporting the MFE campaign in view of the Conference on the future of Europe.

[1] ECJ, 4 April 1974, Mertens (joint Cases 178, 179 and 180-73).

[2] Financing the Community budget: The way ahead, COM(78) 531, 21 November 1978,

[3] Future financing of the EU, Final report and recommendations of the High Level Group on Own Resources, December 2016, pp. 16 and 24, › future-financing-hlgor-final-report 2016_en.

[4] As stated in the Monti report (Future Financing, op. cit., p. 24), “Typically, any variant of a VAT-based own resource follows this model, as would an own resource based on a financial transaction tax or on a carbon tax. Implementing Regulations at EU level can lay down the details of the harmonisation rules, the share of the amount of be [sic] attributed to the EU level, but all these own resources are based upon taxes existing or created at national level. The basic act of a tax can therefore be decided at EU level at unanimity, e.g. on the basis of Article 113 TFEU in the form of a directive such as for the Financial Transaction Tax. It is then transposed into national legislation, levied and collected by Member States. Whether its proceeds are used to finance the national or the EU budget is a separate decision”.

[5] P. Boria, Diritto tributario europeo, 2nd ed., Milan, Giuffré, 2015, p. 489.

[6] The second point that must necessarily be addressed concerns the need to devise a reform of the Treaties that introduces the clause of majority ratification by the member states and includes a protocol or an ad hoc instrument to regulate the maintenance of the acquis communautaire for those states that do not want to accede to the new Treaty immediately, but that will remain an integral part of the single market.


Share with