Fundamental challenges are facing modern national governance. Some of them are going to be visible in 2022, such as: modernising business and society while “converting” national economies on sustainable way through digital transformations, changing working conditions and businesses, while preserving peoples’ health and wellbeing.
Most important and vital for all spheres of governance are digitalisation processes: large internet platforms presently determine the “amount of power” they are having on communities and decision-makers. Some say, they have become “digital gatekeeper, which can restrict market access until they get a share of the profits or the flow of data”.
Reference to: https://ec.europa.eu/commission/presscorner/detail/en/SPEECH_21_6041
In all sides of this process a so-called “price to pay” is involved: e.g. for consumers, by disclosing personal data (in communicating through Internet, buying things and/or researching). In this way the platforms are defining personal intentions, wishes while “formulating” and predicting peoples’ behavior. Most curious is that people quite voluntarily reveal their intentions, wishes and habits through various digital services!
However, in the present European “digital world” there are no strict rules and/or quality standards to ensure protection and personal data’s security. The EU institutions and the member states are already doing much in digitalisation processes: the “EU’s way” is to keep a balanced cooperation between the EU and national rules; but, generally, it is the EU that is “shaping the EU’ vision” to the digital processes according to European standards.
Around the world the picture is different: e.g. in the USA, in principle, the market traditionally comes first and the government holds back. In China it is exactly the opposite: the government decides on the use of data and people have to accept that “dominance”.
European historically long tradition is based on a balance between the state and the market, while giving particular priority to the individual and putting people first. For the EU institutions the new technologies never interfere with the European values: basically, the individual is not “a part of a whole”, nor a customer (or data point) out of many. The individual is, foremost, a person with rights who has control over his/her life; therefore these rights must be protected by the EU’s legislation, whether in the analogue or a digital system.
With this in mind, the Commission presented the ‘Digital Services Act’ and the ‘Digital Markets Act’ to apply the “digital rules” through the digitalisation process. For example, these rules require that big and small digital platforms shall be transparent in their algorithms work, and that “digital decisions” are in line with the democratic values and open for public debate. In other word, computer programs shall be easily understood by people and controlled by the public, in cases of necessary.
The post-pandemic situation has shown that digitalisation process is more than the number of existing platforms; having resilient global connections and supply chains are important as well. It is vital in this regard to keep in mind the European dependence in microchips (coming mostly from East-Asian states) when several EU sectors fear deficiencies, even in citizens’ medical devises, energy networks and motor-cars as the biggest industrial sector in EU. The future markets depend on semiconductors and microchips’ production: states that can produce the next generation of semiconductors in large quantities are able to retain their technological and economic independence.
Thus in the first half of 2022 the Commission will present a plan of actions based on strong funding for the states wanting to make the change following the adoption of the EU’s “European Chips Act” for companies producing chips with the aim of regaining a 20 percent share of the growing global market by 2030 from the present 10 percent.
The EU states are able to reach that target, according to the Commission with the cutting-edge European research in Belgium, a strong industrial base in the Netherlands and an attractive research hub is in Dresden (Germany), known as Silicon Saxony. The EU-27 with a market with 450 million citizens can preserve and strengthen European technological sovereignty in this field and in a number of others. Source: https://ec.europa.eu/commission/presscorner/detail/en/SPEECH_21_6041
Modern business technologies not only represent a vital instrument in geo-political controversies among the states; traditional corporate structures are changing fundamentally as the world is shifting to locally-oriented manufacturing to secure own needs. Countries thrive when they are net producers of physical products: conversely, they shrink when they are net consumers of these products. To make changes happen, modern governance need to think differently, i.e. “build regionally” and produce locally. However, countries don’t need to build the entire product; they can build parts, and share them more narrowly amongst their neighbors to be self-sufficient finally.
Many states in the EU-27 are not sufficiently equipped for manufacturing with inadequate resources and infrastructures: digitisation makes it possible to overcome this deficiency by simple cooperation and value-chains’ coordination in manufacturing and training.
Post-pandemic additionally highlighted the power of technology and digitalisation in business: the companies that invested in modern technology and digital transformation are in much better position to weather the global challenges. The Fourth Industrial Revolution makes the changing world a better place; hence the importance to use digitisation. Renewed efforts are driven by a range of innovators (incl. start-ups and entrepreneurs) bringing diversity and creativity to technological innovation.
The EU’ support for business includes several instruments; thus, through the post-pandemic support under the COSME Loan Guarantee Facility and the InnovFin SME Guarantee Facility, the Commission and the EIF have made liquidity available to micro, small and medium-sized companies. During the post-pandemic time for various businesses, e.g. the SMEs, the EU supports companies in the states to get swift access to finances.
Among most vital EU instruments are:
= COSME – the EU program for the Competitiveness of Enterprises and SMEs with a budget of € 2.3 billion during last five years. At least 60% of the program was devoted to improving access to finance for SMEs with two financial instruments: a) the COSME Loan Guarantee Facility to supports guarantees and counter-guarantees to financial institutions to help them provide more loans and lease finance to SMEs; and b) COSME Equity Facility for Growth providing risk capital to SMEs mainly in the expansion and growth stages. Source: EU financial institutions functioning in corresponding EU states with access to funding at:
= The European Investment Fund (EIF) is part of the European Investment Bank group; its main mission is to support European micro, small and medium-sized businesses (SMEs) by helping them to access finance. EIF designs and develops venture and growth capital, guarantees and microfinance instruments which specifically target this market segment. In this role, EIF fosters EU objectives in support of innovation, research and development, entrepreneurship, growth, and employment.
VAT and taxation in EU
The VAT Gap is relevant for both the EU and the member states since VAT makes an important contribution to both the EU finances and the national budgets. The “gap” uses a consumption-side “top-down” methodology in national accounts to produce estimations of VAT compliance gaps. Thus, VAT gap is calculated as the difference between a VAT-due and actual VAT-revenues showing revenues lost compared to a theoretical VAT-accommodation expected.
EU states lost an estimated €134 billion in Value-Added Tax (VAT) in 2019, according to a report by the Commission in December 2021: these are the lost revenues due to VAT fraud and evasion, VAT avoidance and optimization practices, bankruptcies and financial insolvencies, as well as miscalculations and administrative errors. While some revenue losses are impossible to avoid, decisive action and targeted policy responses could make a real difference, particularly when it comes to non-compliance.
More info in: – Q&A; – Factsheet; – Full report with detailed information per Member State; – Commission Action Plan for fair and simple taxation supporting the recovery; – Commission proposals for far-reaching reforms of the EU VAT system.
VAT-gap issues remains a major concern, particularly in view of the immense investment needs the member states must address in the coming years; e.g. in 2021, the “gap” corresponded to a loss of more than €4,000 per second. These are unacceptable losses for national budgets, which mean that ordinary people and businesses are left to pick up the shortfall through other taxes to pay for the vital public services. Therefore, both the EU institutions and the states have to make joint efforts to crack down on VAT fraud, which is a serious crime that takes money out of consumers’ pockets, undermines the welfare systems and depletes government coffers.
Reference to P. Gentiloni, Commissioner for the economic development in press release at:
According to Eurostat statistics, the highest recorded national VAT-compliance gap in 2019 was in Romania with about 35 percent, followed by Greece (25.8%) and Malta (23.5%). The smallest gaps were observed in Croatia (1.0%), Sweden (1.4%), and Cyprus (2.7%). In absolute terms, the highest VAT compliance gaps were recorded in Italy (€30.1 billion) and Germany (€23.4 billion). European Commission supported the states through the so-called Eurofisc-network, comprised of national officials from the EU-27 and Norway. Since 2019, members of the network actively use the Transaction Network Analysis (TNA) tool financed by the EU to rapidly exchange and jointly process VAT data, allowing them to automatically detect cross-border VAT fraud at a much earlier stage.
In 2022, the Commission will also launch legislative proposals to further modernise the VAT system, including the reinforcement of Eurofisc.
Strange enough, but still a range of offshore services (e.g. company formation and maintenance, creating and maintaining bank accounts, etc.) are provided in the Baltic States. As one of the companies in the market assumes, “most common reasons for choosing the offshore are optimization of taxes, asset protection and captive insurance, protection of intellectual property, confidentiality and privacy”. At least five jurisdictions for offshore facilities are recommended by the “Baltic Legal” company. Source: https://www.baltic-legal.com/offshores-company-services-eng.htm
Employment: future of work
During first two decades in 21st century the traditional employment, e.g. full-time, subject to labour law has been subject to disruption. Although still dominant in the EU, the pandemic during 2020 has made people in various forms of employment thinking about inevitable changes.
Analysing the EU labour market, the European Foundation for the Improvement of Living and Working Conditions, Eurofound has made some assessments about the trends. Some new forms of employment are expected to continue to grow, due to the twin transition to the digital age and a carbon-neutral economy.
European labour market is turning to a mobile-type work enabled by information and communications technology (ICT) or ICT-based mobile work. This first trend is generally attributed to digitalisation and other associated societal changes; the second trend, so-called casual work is driven by the economic requirements of employers. In this employment form, the employer is not obliged to provide the worker with regular work but can call them in on demand, resulting in an unstable and discontinuous work situation for the employee.
ICT-based mobile work is presently dominant in all EU states, while casual work (previously regarded new in about 44% states) is now prevalent in about 86%. Particularly striking is the rise in “platform work”, which was new in about 40% of the countries in 2013–2014 but exists now in more than 95% of the states. Source: https://www.eurofound.europa.eu/publications/blog/new-forms-of-employment.
New employment forms are becoming prevalent in the EU-27, contributing to greater diversity in the European labour market. Digitally-enabled new forms of employment could play important role in the general recovery, as well as in more resilient business models (e.g. in worker cooperatives) or contributing to employers and employees alike in economically difficult times (e.g. in employee-sharing schemes). At the same time, some of the new employment forms are identified as less advantageous for workers; casual work and some types of platform work might surge due to a lack of alternatives in the labour market in the post-pandemic situation, rendering already precarious workers even more vulnerable. Thus, casual and voucher-based work, as well as platform work and collaborative employment status should be clarified and sustainable career trajectories ensured, to avoid labour market segmentation. In the digitally enabled new employment forms, the focus could be on monitoring and control, algorithmic management, and data ownership, protection and use. Reference to: https://www.eurofound.europa.eu/publications/report/2020/new-forms-of-employment-2020-update
Employees and customers’ issues, new workforce and skills are key issues to perspective growth in the EU-27 member states and globally. Thus, in the short-term scenarios, the World Economic Forum’s forecast for the “world of work by 2025” reveals that: work from home (or “remotopia”), green jobs, the gig-revolution and automation will “rewrite the rulebooks”. However, decision-makers will have an opportunity to shape the future they want rather than simply manage the future that comes.
Of course, so-called “freelancing” offers agility to companies that have to adapt to unexpected challenges and provide freedom to workers who want flexible and remote work arrangements; embracing these working position shifts is expected to succeed in the “future of work”, no matter where or when that happens.
As the post-pandemic forces a re-think of entrenched work culture norms, the opportunity arises for disruption of professional services via the circular and digital economy. But the tools to move towards a less exploitative and more just platform economy will be essential, with national strategies that would inevitably involve transparency, accountability, workers’ power and democratic ownership.