Based on the legislative set-up under the EU’s budget under the previous multiannual financial framework (MFF) 2014-2020 [Article 5 Regulation 236/2014], the Commission has been requesting tax exemptions in several partner countries.

Provisions on tax exemptions are heterogeneous and not all of them cover all taxes and customs duties. The provisions relating to tax exemptions mainly concern indirect taxes (VAT, customs duties or equivalent taxes) and there are few provisions on taxes on income or profits, which may be required from entities or persons implementing the project.

Moreover, under the European Development Fund (EDF), the ACP-EU Partnership Agreement stipulates that African, Caribbean and Pacific (ACP) countries should apply tax and customs arrangements to contracts financed by the EU which are no less favourable than those applied to the most favoured nation and lists a number of taxes to be exempted by partner countries and others that are eligible and must be paid. The taxes not included in the list are subject to the national legislation in force in the ACP country concerned [Article 31 Annex IV ACP-EU Partnership Agreement, as amended by Decision No 1/2014 of the ACP-EU Council of Ministers. See also Article 11 Regulation 2015/322]. The specific tax and customs arrangements under the ACP-EU Partnership continue to apply to the further implementation of financing decisions/implementing measures financed by the EDF.

This policy has been updated through the new Neighbourhood, Development and International Cooperation Instrument (NDICI) – Global Europe, which was adopted on 9 June 2021 and covers the period 2021-2027.

Moreover, the successor to the Cotonou agreement will include a change as well. See review section below.

Review underway/planned

NDICI-Global Europe no longer includes an obligation to negotiate tax exemption agreements. The relevant article (Article 27(9)(10)) says: “The Union funding shall not generate or activate the collection of specific taxes, duties or charges. Taxes, duties and charges imposed by partner countries may be eligible for financing under this Regulation.” The implementation of the policy framework under the NDICI – Global Europe will require policy decisions.

The successor to the Cotonou Agreement will not envisage tax and customs arrangements for the European Commission as currently foreseen in the current Cotonou Agreement. Although the political negotiations on this new Partnership Agreement were concluded with the initialling of the agreement on 15 April 2021, the application of the Cotonou Agreement has been extended until 30 June 2022 , or until the new ACP-EU Partnership Agreement enters into force or is provisionally applied [Decision No 3/2021 of the ACP-EU Committee of Ambassadors], so as to give more time to carry out the procedures required for the new Agreement to be signed and be provisionally applied.

The legal basis for ODA tax exemptions varies depending on the partner country:

• The ACP-EU Partnership Agreement has been the basis for tax exemptions with ACP countries before entry into force of Global Europe. The specific tax and customs arrangements under the ACP-EU Partnership continue to apply to the further implementation of financing decisions/implementing measures financed by the EDF.

• In some other countries, tax exemptions have been negotiated bilaterally and formalised in dedicated tax exemption agreements or included as a clause in overarching framework agreements. The model for the financing agreements concluded, with the aim of implementing specific Actions, with partner countries establish that the latter must ‘apply to procurement contracts, grants contracts and contribution agreements financed by the EU the most favoured tax and customs arrangements applied to States or international development organisations with which it has relations.’ The provisions of a specific financing agreement may supplement this regime. When a framework agreement provides for more detailed fiscal provisions, these provisions shall also apply.

The Cotonou Agreement as a basis for tax exemptions with ACP countries can be accessed here.

Beyond that, there is no public access to tax exemption agreements or relevant clauses in overarching framework agreements.