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Published: 16 Feb, 2017

A Financial Transaction Tax might contribute to the closing of sustainability gaps in the EU budget

NEWS Strengthening the link between smart, sustainable and inclusive growth and the EU system of own resources, the introduction of Financial Transaction Tax (FTT) as a tax-based own resource could contribute to the decrease in the existing sustainability gaps.

Veronika Solilová, Ph.D.

Those are the findings of the recent FairTax working paper "Sustainability-oriented Future EU Funding: A Financial Transaction Tax", elaborated by FairTax researchers Veronika Solilová, Danuše Nerudová and Marian Dobranschi, all from the Department of Accounting and Taxes at Mendel University in Brno.

The current EU system of own resources is facing several criticisms, mainly in the form of the weak link to the central aim of the Europe 2020 strategy: to promote smart, inclusive and sustainable growth in the EU. Schratzenstaller et al. (2016) and the report “Future Financing of the EU” (2016) state that tax-based own resources are a well-suited instruments to reduce existing sustainability gaps in taxation in the EU: to decrease distorting taxes, to internalise market imperfections, to minimize tax competition and tax fraud / evasion within the EU.
“The results of our study show, that the introduction of a FTT-based EU own resource might considerably contribute to the closing of existing sustainability gaps. A FTT would be able to internalise market imperfections in the form of speculation in financial markets, to establish fair tax competition, to prevent the fragmentation of the Single Market and the distortions of competition, and to strengthen corrective taxes. However, with respect to the EU budget, the simulations show that the tax revenues from a FTT might fully replace VAT or GNI-based own resources only if the FTT would be levied on EU level (EU11 or EU28) as a direct payment to the EU budget without the possibility of tracking the source Member State” says Veronika Solilová.

In the paper, the researchers apply three different scenarios and variants, depending on the tax rates and the assumptions of the reaction of financial markets, to estimate potential financial transaction tax collection in the EU. The study considers the ability of a financial transaction tax to replace the VAT- or GNI contribution to the EU budget based on the remittance system.
“We would like to highlight that the introduction of a FTT on the EU level (not on national) is able to resolve disputes between “net contributors” and “net beneficiaries”, as Member States would not be able to calculate their net positions.” says Veronika Solilová.

FTT replacing VAT- or GNI-based own resource

To research the revenue potential of the FTT, the researchers designed a model based on the idea of a remittance. The system foresees the replacement of the VAT-based own resource (resp. GNI-based own resource) through the transfer of the financial transaction tax revenues based on the FTT raised on the national level to the EU budget. The results of the research show that the FTT-based own resource would be able to fully replace the VAT- or GNI-based own resource only in some Member States, depending on the scenario and variant of the model simulation. However, the FTT is sufficient to fully replace VAT- or GNI-contributions if levied on EU11 (EU28) level (not on national).
“In our study, we can see that the largest benefit connected with the introduction of a FTT in the EU through a remittance system, is the fact that it could reflect the central motivation of a sustainability-oriented EU tax approach. This would not restrict national tax sovereignty.” Veronika Solilová concludes.

Download the paper “Sustainability-oriented Future EU Funding: A Financial Transaction Tax”:

If you have questions, please contact Veronika Solilová, Ph.D., Research Assistant at the Department of Accounting and Taxes at Mendel University, Brno:


Schratzenstaller, Margit, Krenek, Alexander, Nerudová, Danuše and Dobranschi, Marian. 2016. EU Taxes as Genuine Own Resource to Finance the EU Budget – Pros, Cons and Sustainability-oriented Criteria to Evaluate Potential Tax Candidates. FairTax Working Paper No. 03, 81p.

FUTURE FINANCING OF THE EU, Final report and recommendations of the High Level Group on Own Resources. December 2016

Editor: Elin Andersson