The European Commission has abandoned its plans to impose a tax on digital companies, a move seen as a victory for Donald Trump and tech giants such as Apple and Meta.
As the EU and the United States are in the final stretch of negotiations for a trade deal, Brussels has withdrawn the digital tax option from its list of proposed revenue-generating taxes over the next seven years, according to a document released Friday and seen by Politico.
With just a few days left until the announcement of the draft budget, top EU officials are in intensive consultations to decide which taxes to include in the Commission's proposal, to be published on Wednesday, for the budget starting in 2028. The document, which may still be under review before publication, lists a list of possible taxes, without specifying how much revenue each of them would generate.
The decision not to proceed with the digital tax is a major setback for the EU, which only in May had considered taxing tech giants as a means of repaying the Union's debt. The idea was mentioned in a document for the next budget, discussed by the 27 EU commissioners.
This shift could be seen as a strategic move on the part of the EU, which seeks favourable trade terms with the US. U.S. President Donald Trump had threatened tariffs against Canada in retaliation for his own digital taxes.
What will be the new EU taxes?
The issue of the EU's own taxation has always been a sensitive one, as national governments worry about giving Brussels too much power to raise taxpayers' revenue and gain too much autonomy over how it spends it. The vast majority of EU funds come from member states' contributions. However, with more and more politicians calling for tighter spending control in Brussels, the Commission is looking for new sources of funding.
According to Friday's document, instead of the digital tax, it proposes three new taxes targeting electrical waste, tobacco products and large EU companies, with a turnover of more than €50 million. The aim is to raise €25 to €30 billion per year, which will be used to repay the EU's common debt used to finance the post-pandemic recovery.
The Commission will propose an EU-wide tax on tobacco products, such as cigarettes and cigars. Today, these products are taxed at the national level and the revenues remain in the member states.
The EU's proposal comes at a time when the imposition of new taxes on e-cigarettes and vaping products, which are facing opposition from Italy, Greece and Romania, is being discussed. While not opposed to the proposed new taxes, Sweden said ceding part of its national revenues to the EU was "completely unacceptable".
The Commission is also proposing to tax discarded electrical equipment.
Wednesday's proposal is expected to confirm earlier proposals from 2021 to impose a carbon tax at the border — an idea that resonates in several states — as well as collect a share of the revenues generated by the Emissions Trading System (ETS).
This idea is politically sensitive in the countries of Eastern Europe, which are most affected by the ETS. In an attempt to appease critics, the Commission has proposed that only a small part of the ETS revenues end up in the EU budget, while the rest will remain with national governments. He also added that a controversial plan to extend the system to buildings and road transport – known as ETS2, which will enter into force in 2027 – would not feed into the EU budget.
National governments will have to unanimously approve the new taxes, in two-year negotiations, which will start as soon as the Commission presents its proposal.
