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15th May 2021

France rejects EU-wide VAT proposal

France has rejected a European Commission proposal to create an EU-wide value added tax (VAT), but insists it is still open to the EU having some form of 'own resources'.

The subject was one of several issues discussed by French Prime Minister Francois Fillon during a working lunch with European Commission President Jose Manuel Barroso in Brussels on Thursday (14 April).

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  • Jose Manuel Barroso and Francois Fillon (Photo: European Commission)

Member states are gearing up for a major debate on the EU's next multi-annual budget (post 2013), with the commission set to come forward with draft proposals this June.

Heavy wrangling in previous years has convinced the commission and MEPs that the EU needs to have its own self-funding mechanism, but Fillon said the EU VAT idea was not one that Paris was willing to consider.

"I don't think there will be any question of having a European VAT," he told journalists inside the commission's Berlaymont building as Barroso looked on. "But France is not closed on this idea of own resources for the European budget."

Value added tax is a form of consumption tax, extracted at a national level each time companies or individual purchase goods. An EU-wide VAT was one of several self-funding ideas put forward by the commission in a paper published towards the end of last year.

Other suggestions included a financial sector tax, an EU charge related to air transport, an EU energy tax and an EU corporate income tax.

The EU budget has produced some of the most heated battles in the Union's history, with former UK prime minister Margaret Thatcher famously banging her handbag on the negotiating table and declaring "I want my money back".

Funding methods have steadily changed over the years, with national contributions representing 10 percent of the EU budget in 1988, while these days they amount to roughly 70 percent as takings from EU customs duties and farm levies have declined.

The common agricultural policy (CAP) and funding for poorer regions currently eat up the vast majority of the EU's roughly €130 billion-a-year spending pot, with countries such as Britain traditionally keen to see more money spent on measures to promote industry and innovation.

France on the other hand, with its vocal farming sector, is a strong advocate of a well-funded CAP.

"Food security is a major challenge for Europe and now is not the time we should be giving up on this," said Fillon. "The CAP, contrary to other European policies, has been reformed continuously ... Agriculture should remain at the top of the agenda."

The Frenchman, seen as a calm counterbalance to the more impulsive French President Nicolas Sarkozy, warned however that EU member states were feeling the pinch, and were unlikely to support a large increase in the EU's overall budget.

"Negotiations on this are going to take place within a very tight environment for national budgets. Those constraints have to be taken on board by Brussels," he said.

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