International Business

The New Financial System

The basis for a new financial system for the general budget of the European Community was laid by the European Council held in Brussels, on 15th and 16th December 2005. This system was finalised in 2007 in the Council Decision and the sources of finance were reserved for the EC general budget as a consequence.

In the Article 311 of the Treaty on the Functioning of the EU (TFEU) it is stated that arrangements to the Union’s own resources must be taken by unamious Council decisions. This means that it is the member states that make the decisions and each member state has a veto over any proposed modification of the system. The historical basis of this system was the Luxembourg agreement of 1970.

Customs and Agricultural Levies

Customs duties are taxes on imports which are levied at the external borders of the Union. The first common customs rates were already determined 2 years earlier than planned, in 1968. In the Treaty of Rome customs duties were considered as the primary source of finance for the expenditure of the European Economic Community.

Agricultural levies were instituted in 1962 and then transferred to the Community on 21 April 1970. These taxes used to vary according to the price on the global and European markets. Since the multilateral trade agreements of the Uruguay Round have become part of the Community law, there is no distinction made between agricultural levies and customs duties.

Levies on sugar are a little bit different in nature as they affect sugar-producing enterprises. These firms have to pay a production levy to cover the cost of supporting the market as well as a storage contribution that serves to ensure regular sales.

VAT, GNI and other receipts

Value Added Tax (VAT) had to be established as a source of financing by the Decision of 21 April 1970 because the traditional own resources were unsatisfactory to finance the Community budget.

Gross National Income (GNI) was introduced as the...