C2: Government's proposal for Regulation 2024/02 laying down the Federal Budget

THE HOUSE OF EUROPEAN CITIZENS AND THE EUROPEAN SENATE,

Remembering the continuum of the European integration project, created on the
premise of economic cooperation between peaceful nations as a step towards de
facto solidarity and federation among European nations,

Having regard to the European Youth Convention, and in particular Articles 47 to
52 thereof,

Having regard to the OECD/G20 Base Erosion and Profit Shifting Project group’s
Statement on a Two-Pillar Solution to Address the Tax Challenges Arising from
the Digitalisation of the Economy, by which Member-States of the former European
Union agreed upon the implementation of a minimum Tax base for mutli-national
corporations,

Having regard to the proposal from the European Government,

Acting in accordance with the procedure laid down in Article 20 of the
Convention and Rule 6.1 of the Rules of procedure,

Whereas:

1. The European Federation is built on the assumption that economic
   cooperation leads to interdependencies and ultimately to de facto
   solidarity among nations. It acts as a descendant body of the former
   European Union, adopting all the previous legal acts and treaties from the
   Union, unless contradicted by future legislation.

2. In order to guarantee macroeconomic and financial stability and solidarity
   among Member-States, the Federation must pursue and further develop the
   mechanisms adopted through the Next Generation EU recovery package, the
   first step towards a genuine Federal Budget, autonomous from national
   contributions.

3. In order to fulfill the Federation’s commitment to achieving climate
   neutrality by 2050, it is essential to allocate the proper resources and
   support mechanisms. To that end, the resources mentioned in Article X of
   the present Regulation shall be specifically allocated to meet the
   environmental requirements of the Federation.

4. In order to meet those two challenges, the European Federation needs to be
   fitted with the proper fiscal resources. As a the predecessor of the
   former European Union, it inherits the contributions from Member-States,
   the collection of part of the Value Added Tax (VAT) as well as customs.
   Those resources constitute a necessary base, but do not support as it
   stands all of these objectives. New resources need to be added to the
   Federal budget.

5. Member-States of the former European Union committed to implement the OECD
   agreement on a corporate tax harmonization, setting a minimum tax rate of
   15% of a company’s profit. This must constitute a permanent new ressource
   for the Federal budget, along with the creation of an Internal Carbon Tax.

6. In order to macro-economic stability, it is absolutely imperative to
   maintain a sound level of public finances. For that purpose, the
   Federation must maintain the rule of keeping the annual deficit below 3%
   of GDP and the level of debt below 60% of GDP. Even if this rule is not
   explicitly mentioned, an extensive interpretation of Article 52 of the
   European Youth Convention must be made in this sense. To achieve this, the
   Federation must absorb national debts so that they can be repaid in the
   long term.

HAVE ADOPTED THE FOLLOWING REGULATION:

CHAPTER 1 : GENERAL PROVISIONS

Article 1: Object

The present Regulation lays down the Budget through which the Federation can
collect and make use of financial resources to meet its financial commitments.

Article 2: Definitions

For the purposes of this Regulation:

1. Budget - Refers to the set of elements by virtue of which the Federation
   anticipate its revenues and financial commitments for the following year;

2. Deficit - Refers to the situation in which a Government’s expenditures are
   higher than its receipts on a yearly basis. The difference between
   expenditures and receipts is corrected by contracting debts.

3. Debt - Refers to the total of the Federation’s financial commitments. It
   results from the cumulative financing needs of the Federation over time.

4. Tax - Refers to a compulsory, unrequited payment to public authorities.

5. Corporations - Operate inside the member-states, defined as entities
   engaging in any type of economic activity within the territory of the
   member-states, including but not limited to manufacturing, sales, service
   provision, or any form of commercial operations, shall comply with all
   relevant regulations and laws of the European Federation. This definition
   excludes entities whose sole interaction with the member-states consists
   of importing goods or services from the European Federation without
   engaging in any other economic activity within its territory, but they
   might be subject to different tariffs

CHAPTER 2: ON THE FINANCIAL RESOURCES OF THE
FEDERATION

Article 3: Minimum Corporate Tax

To ensure a fair and equitable economic environment and to prevent the erosion
of the Federal tax base, the Federal European Government hereby establishes a
Minimum Corporate Tax Rate.

The Minimum Corporate Tax Rate shall be applicable to all corporate entities
operating within the Member-States of the Federation.

Article 3a.

1. The Minimum Corporate Tax Rate shall be set by an evaluation by the
   Ministry of Finance. The evaluation will take into account the Balance
   Sheet Total (BST) of each corporation. The Miminum Corporate Tax Rate
   shall be set:

   • For companies with a BST ≤ 10.000.000 will be taxed at a rate of 5%.
   
   
   • For companies with a BST ≥ 42.000.000 will be taxed at a rate of
     15%.
   
   
   • For companies that hang in the middle range will be taxed
     progressively at the rate set by the tax determination law.

2. This rate shall apply to the profits of corporate entities as defined by
   the Federal Tax Code.

3. Corporate entities that demonstrate significant contributions to
   environmental sustainability, such as reducing carbon emissions by at
   least 20% or transitioning to renewable energy sources for at least 50% of
   their operations, shall receive additional tax incentives. These
   incentives may include a further reduction in the corporate tax rate by up
   to 2%.

Article 3b.

1. Member-States shall implement the Minimum Corporate Tax Rate through their
   respective national legislation.

2. Member-States shall ensure that their national tax laws are in compliance
   with the Minimum Corporate Tax Rate provisions of this Article.

Article 4: Carbon Domestic Adjustment Mechanism

1. In an effort to combat climate change and incentivize the reduction of
   greenhouse gas emissions, the Federal European Government hereby
   establishes a Carbon Domestic Adjustment Mechanism applicable to all
   member states of the Federation, consisting of a hybrid system based on
   both the ‘cap and trade’ structure (ie. permits) and a taxation regime.

2. For the purpose of the present Regulation this mechanism shall:
   • Comprise a tax rate (Art. 4a);
   
   
   • Be allocated to environmental programs (Art. 4b);
   
   
   • Include punitive measures against faulty administrations (Art. 4c).

3. The Carbon Domestic Adjustment Mechanism shall be levied on the carbon
   dioxide equivalent emissions of fossil fuels, including but not limited to
   coal, natural gas, and oil, at the point of production or importation into
   the Federation.

Article 4a.

The system shall be structurally based on the ‘cap and trade’ principle (ie.
permits), and will incorporate a 10% tax which shall be applied to the market
price of carbon credits. The latter tax is to be borne on the firm purchasing
carbon credits.
Global emission targets (and thus permits issued), will be decreased at a rate
of 5% per year.

Article 4b.

Revenues generated from the European Union emission Trading systeme (ETS) shall
be allocated to the Federal Budget and used for the following purposes:

1. Investment in renewable energy and energy efficiency projects.

2. Support for innovation in low-carbon technologies as determined by the
   independent commission.

3. Assistance to industries and communities transitioning away from fossil
   fuels with the decision of the independant commission.

4. Mitigation of the impact on low-income households through rebates or tax
   credits.

Article 4c.

1. Entities subject to the Carbon Domestic Adjustment Mechanism must report
   their emissions annually to the designated national Authority.

2. Failure to comply with reporting requirements or payment of the Carbon
   Domestic Adjustment Mechanism shall result in penalties, including fines
   and legal action.

Article 4d.

The national authority that will decide the allocation of the revenues of the
ETS will be an independent commission:

Article 5: Uniform VAT Rate

In the interest of economic harmonization and fairness, the Federal European
Government hereby establishes a Uniform Value Added Tax (VAT) Rate.

The Uniform VAT Rate shall be applicable to all goods and services sold within
the member states of the Federation.

The Uniform VAT Rate shall be set at:

Each commodity’s value added shall go to the European Federation budget, while
Member States retain the ability to fix at their discretion a higher national
VAT rate.

This rate shall apply to the final consumption of goods and services, excluding
those exempted by the Federal Tax Code.

CHAPTER 3: ON THE FINANCIAL INSTRUMENTS OF THE
FEDERATION

Article 6: Issuance of debt

In accordance with Article 52 of the European Youth Convention, the Federation
may raise temporary debt to face situations that put the Federal Treasury at a
risk of structural imbalance.

Those situations include and are limited to:

1. economic and financial crisis, putting the Federal budget at risk;

2. pandemics;

3. natural disasters occuring within the Federation;

4. events that pose a direct threat to national or Federal

   
   security;

5. economic and financial crisis, putting the welfare of the citizens of the
   Federation at risk.

6. energy crises.

The issuance of debt shall be granted solely to the Federal Treasury Agency,
under the approval by an absolute majority of the Senate.

When a risk of imbalance occurs, the Federal Treasury Agency may issue debt with
a maturity exceeding no longer than 40 years.

Article 7: National contribution to the budget

Member-States shall contribute to the Federal budget by paying at least 2% of
their gross national income through the taxes they collect in the name of the
Federation, including but not limited to the Minimum Corporate Tax, the Domestic
Carbon Adjustment Mechanism, Customs and VAT.

Member-States remain the sole accountables for collecting taxes.

Member-States may apply a national Corporate Tax Rate higher than 15%, but are
entitled to pay for the amount which is due to the Federation.

Member-States may apply a Value Added Tax rate higher than 20%, but are entitled
to pay for the amount which is due to the Federation.

Member-States shall be able to generate debt but must meet the Maastricht
criteria by 2040 (60% of debt to GDP ratio and 3% of deficit).

If the ressources levied to meet the Federation fiscal commitments do not meet
the financial objectives of the Federation, the Government may, following the
extraordinary legislative procedure, present measures to increase the
aforementioned taxes or create new ressources destined to the Federal Budget.

Ensuring Transparency and Accountability in Tax Payments, Member States shall
ensure full transparency and accountability in the payment of all taxes and
levies, including those owed to international organizations and funds.

Each Member State shall establish a publicly accessible registry detailing all
tax payments made to international bodies, including the specific amounts,
dates, and purposes of such payments. This registry shall be updated quarterly
and made available online in an open data format.

Failure by a Member State to comply with transparency and accountability
requirements for tax payments shall result in the following penalties:

1. The Member State shall be brought before the Court of Justice of the
   European Federation. The Court may impose periodic penalty payments or
   lump sum fines until compliance is achieved.

2. If the Member State still fails to comply after Court penalties, the
   Commission may seek further enforcement measures under Articles 258-260
   TFUE.

Whistleblowers and civil society organizations that report suspected tax payment
irregularities shall be protected from retaliation and their claims thoroughly
investigated. A reward system shall be established to incentivize the reporting
of fraud and corruption.

The European Federation shall establish a centralized monitoring system to track
tax payments across all Member States.

CHAPTER 4: ON THE FINANCIAL GOVERNANCE OF THE
FEDERATION

Article 8 : The Federal Treasury Agency

A Federal Treasury Agency shall be created and placed under the responsibility
of the Ministry of Finances and Budget. It is:

1. Responsible for meeting the Federal Government's liquidity commitments so
   that it can honor all of its financial commitments at all times and under
   all circumstances.

2. Tasked with managing and reimbursing on time the debt accumulated by the
   Federal Government and Member-States

Under no circumstances is the Federal Treasury Agency allowed to generate debts
on its own initiative and profits from the bonds already issued.

Article 9: Budget planning

In order to pursue its objectives and financial commitments, the Federation
shall adopt, under the ordinary legislative procedure, an annual budget.

The additional resources laid down by the present Regulation shall be allocated
in priority to the reimbursement of:

1. The borrowing of financial capital through the former EU Next Generation
   EU recovery package.

2. The potential deficit generated by the Federal Pension Regime mentioned in
   Directive 2024/XX laying down fair and decent social standards across the
   Federation.

Article 10: Budgetary monitoring

The European Parliament shall monitor the appropriate implementation of the
budget. The European Parliament is entitled to sanction a Member State, or the
Federal Government, via a procedure for a lack of contribution to the Federal
budget if they do not meet their financial commitments.

CHAPTER 5: IMPLEMENTATION

Article 11: Entry into force and application

1. The present Regulation shall enter into force immediately following its
   publication in the Official Journal of the European Federation.

2. The Government shall be allowed to adopt any decree or implementing act
   related to the implementation of the technical aspects of the present
   Regulation.

3. It shall apply from [Day][Month][Year]

The present Regulation shall be binding in its entirety and directly applicable
to the European Government and in all Member States.

For the European Parliament

The President

For the European Senate

The President