Commission floats digital levy to repay post-Covid debt

BRUSSELS — The European Commission is thinking about levying digital taxes to raise the funds needed to repay its €350 billion post-Covid debt, according to an internal document seen by POLITICO.

The controversial idea could, however, set Europe on a collision course with the U.S. if it is viewed as a retaliatory move against the Trump administration's global tariff onslaught.

Digital levies would disproportionately target U.S. tech giants like Apple and Google and are opposed by countries such as Italy and Germany that heavily rely on trade with Washington.

The Commission floated the option ahead of a discussion on Wednesday among the EU’s 27 commissioners on the bloc’s new budget from 2028 to 2034.  

“Among the possible ‘candidates’ there is a digital levy/tax, given the difficulties in reaching agreement on the proposal based on Pillar 1 of the OECD agreement,” Commission President Ursula von der Leyen and Budget Commissioner Piotr Serafin wrote in a note ahead of the meeting seen by POLITICO.

The Commission in 2021 shelved an EU-wide digital levy to facilitate a global tax deal that has since then failed to gain international traction. But von der Leyen also raised the prospect of a digital tax if ongoing trade talks with the U.S. collapse after a 90-day reprieve that expires in July, a fact that could add sensitivities to the measure.

Irrespective of any retaliatory agenda, at a time of squeezed national budgets on many fronts, the bloc faces genuine pressure to repay its €350 billion common debt that was issued to finance the EU’s post-Covid recovery fund.

Repayments are set to start in 2028 and are expected to cost €25-30 billion per year, which amounts to 20 percent of the Commission’s annual budget.

Many ideas about how to raise the cash have since been floated. In 2021, for example, the Commission proposed paying the new debt by levying new taxes on carbon imports, emissions and the profits of multinationals as part of the OECD deal.

That proposal, however, was opposed by national capitals, prompting officials to seek alternative ideas.

The Commission will brief national experts on the different options on May 22, according to an EU diplomat.

The Commission wrote in the internal note that the digital levy “could be complemented by a tax on e-waste [waste of electrical and electronic equipment], not collected or recycled” as well as customs duties for small parcels that are imported and taxes on travelers entering the EU.

The question of regions

The EU’s central €1.2 trillion cash pot includes everything from agricultural subsidies to foreign aid and is as politically sensitive as it gets.

With the Commission’s proposal on the new budget coming on July 16, negotiations between heavyweights within the EU executive are heating up.

The Commission on Wednesday watered down plans to radically reform how the budget works.

In a significant shift, the EU executive signaled that regions will continue to play a key role under the bloc’s next multi-year budget, according to another internal Commission presentation ahead of Wednesday's meeting seen by POLITICO.

This change is a concession to the European Parliament and key member countries including Poland and Spain who opposed mooted plans to empower national capitals at the expense of regions.

The issue is politically sensitive because regions play a key role in handling so-called cohesion funding, which is aimed at curbing inequalities across geographic areas and makes up a third of the EU’s entire cash pot.

Critics claimed that sidelining regions would make EU spending less effective and undermine democratic accountability.

“Instead of speaking about a ‘single national plan,’ we must rather speak of ‘national and regional partnership plans,’” the Commission wrote in the presentation.

This is arguably a climb down from von der Leyen’s intention to set up “a plan for each country linking key reforms with investments” in her mission letter to Commissioner Serafin in September.