Victory for Trump as EU backs down on digital taxes in next budget

BRUSSELS ― The European Commission has dropped plans to levy a tax on digital companies, a move that hands victory to Donald Trump and U.S. tech giants like Apple and Meta.

With the EU and the U.S. embroiled in the final stretch of negotiations over a trade deal, Brussels removed the digital tax option from its ― supposedly unrelated ― list of proposed taxes for bringing in revenue during its next seven-year spending program, according to a document circulated on Friday seen by POLITICO.

With only days to go until the budget plan is unveiled, top EU officials are locked in high-stakes talks to decide which levies will feature in the Commission’s proposal, to be published on Wednesday, for the budget starting in 2028. The document, which still could be revised by officials before publication, set out a list of possible taxes but did not quantify how much money each one would likely generate.

Deciding against a digital levy would be a major turn-around for the EU, which as recently as May floated taxing tech giants as a way of paying back the bloc’s debt. The idea was mentioned in a document on the next budget discussed by the EU’s 27 commissioners.

The U-turn could be a strategic move by the EU, which is desperate for advantageous terms on trade with the U.S. President Donald Trump threatened tariffs against Canada as payback for their digital levies.

What the new EU taxes could be

The issue of the EU raising its own taxes has always been a sensitive one, with national governments wary of giving the bloc too much power to extract money from their voters and too much autonomy over how it spends it. The vast majority of EU funds comes from governments’ contributions.

But with politicians increasingly demanding Brussels tighten the purse strings, the Commission is on the lookout for new sources of cash.

According to Friday’s document, instead of a digital levy it wants to propose three new taxes targeting electric waste, tobacco products and large companies in the EU with a turnover of over €50 million.

The aim is to generate from €25 to €30 billion per year that will be used to repay EU joint debt that was used to finance its post-Covid recovery.

The Commission will propose an EU-wide levy on tobacco products such as cigarettes and cigars. These goods are currently being taxed by individual countries, who keep the revenues for themselves.

The EU’s idea comes amid a push to introduce new taxes on e-cigarettes and vapes that are opposed by Italy, Greece and Romania.

While not opposing the proposed new taxes, Sweden said that handing part of its national revenues to the EU is “completely unacceptable.”

The Commission also suggests taxing discarded electrical equipment.

Wednesday’s proposal is expected to also confirm proposals from 2021 to levy a carbon border tax ― a popular idea among countries ― and a take share of the revenues generated by the emissions trading scheme (ETS).

This idea is politically sensitive among Eastern European countries who are most affected by ETS.

In a concession to critics, the Commission suggested that only a small share of ETS revenues will flow to the EU budget, while the rest would stay with national governments. It added that a controversial plan to extend the scheme to buildings and road transport ― known as ETS2, which will come into force in 2027 ― won’t be funneled into the EU budget.

National governments will have to unanimously approve the new taxes over two years of fraught negotiations that will start after the Commission makes its proposal.