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EU will need to tax AI ‘workers’ to keep funding human pensions
Every major technological shift reshapes not just the economy but the tax system that pays for it. When big corporations emerged, corporate and payroll taxes followed. When mass car ownership took hold, fuel duties emerged to pay for the roads it required.
As AI shifts work from people to machines, it will force a rethink of who gets taxed, on what, and where. Nowhere is that question more urgent than in Europe, which funds the world’s most comprehensive welfare states primarily through taxes on work.
Taxes on work make up 51.5 percent of all tax revenue in the EU-27, according to the European Commission’s latest Taxation Trends data — a share that rose in 2024. These charges are taken straight from the payslip. They’re hard to avoid, and scale with employment.
AI, by replacing human work with software and machines, eats away at exactly this tax base.
The International Monetary Fund (IMF) estimates that around 40 percent of jobs worldwide are exposed to AI. If that leads to fewer workers, it will also mean fewer payslips, pension contributions and social charges, weakening the revenue streams that fund Europe’s pension and healthcare systems. This is not a distant problem; the costs are already mounting.
Shift the burden to corporate profits
The obvious response is to shift more of the tax burden onto corporate profits, which will increasingly reflect the gains firms make by deploying AI instead of hiring workers.
Unlike a tax on machines and equipment themselves, a profit tax falls mostly on excess profits and need not distort investment. The case for shifting weight from payroll taxes to profits is strong and strengthens as AI replaces more workers with machines.
But profits, unlike payrolls, move. A company can locate its intellectual property in a low-rate jurisdiction — a pattern Europe knows well from decades of profits routed through Ireland and Luxembourg — and ensure that profits are booked far from where the jobs are lost. It is how the world’s largest technology and AI firms already operate.
Two-pillar answer
The Organisation for Economic Co-operation and Development’s (OECD’s) Inclusive Framework was designed to address exactly this: profits shifted across jurisdictions to avoid tax, and e-commerce allowed sales where firms have no physical presence. AI makes these reforms more urgent.
Pillar One of the framework put forward by the Paris-based wealthy nations’ club addresses where a corporation is taxed. It shifts partial taxing rights for the largest multinationals away from where they are headquartered and toward where their customers and users are located.
Still under negotiation, it would apply only to a handful of the largest firms, but many AI companies would qualify.
These firms are concentrated in a select number of countries, very few of them European, but the displacement they cause, and the public services that displaced workers will require, will weigh heavily on European budgets.
Pillar Two of the OECD framework introduces a global minimum corporate tax of 15 percent on multinationals with revenues above €750m.
The EU moved first and furthest: Council Directive (EU) 2022/2523 made the minimum tax binding across the Union from 2024, and 22 of the 27 member states now apply it in full. The United States, notably, has not implemented the rules.
Politics is undermining the fix
But the obstacles are real. US ratification of the OECD proposals is unlikely, and many of the largest companies are headquartered there.
The pressure is already reshaping Europe’s own rules: under the G7’s June 2025 ‘side-by-side’ agreement, US-parented groups would be exempt from the EU’s minimum-tax rules: a carveout the European Commission confirmed in January 2026 and which several member states consider legally fragile.
The Commission also dropped its proposed EU digital levy under US trade pressure, leaving a patchwork of national digital services taxes in France, Italy, Spain, Austria, and elsewhere.
Such exceptions and carveouts show that big-power politics can hollow out the framework. These reforms were designed to address the tax challenges for an AI-economy. They were good policy then. They are fiscal necessities now. Fairer corporate taxation will not be enough, but it is a start.
Europe’s choice
The EU has instruments on the table, the BEFIT common corporate tax base and the proposed Corporate Resource for Europe, but both remain politically contested.
European governments that fail to act will be managing the social costs of technological disruption with a tax system built for the industrial age, while the profits that fund their rivals accumulate beyond their reach.
Even if Europeans work less, their needs for health care, pensions, and consumption remain. As wage-based contributions shrink, Europe must shift more of the tax burden onto corporate profits and close off the routes that let those profits move beyond the reach of the states bearing the costs of automation.
Productivity gains may soften the arithmetic; they will not repeal it. The tax base must follow the economy.
