Hungary has stalled progress on a proposed EU directive implementing a comprehensive minimum corporate tax, in the latest setback to plans to tax large multinational companies fairer.
Mihály Varga, Hungary’s finance minister, told his fellow EU ministers at a meeting in Luxembourg on Friday that his country could not support the levy at this stage, partly because of the enormous pressure that economies and businesses are suffering because of the war in Ukraine and rising inflation.
The move – which reverses Hungary’s previous support for the tax – came even as Poland withdrew its own veto and gave the go-ahead for the tax to go ahead.
Last year, 137 countries backed the introduction of a minimum effective tax rate of 15% on large corporations, known as Pillar Two, and Brussels has since been trying to embed the reform into the law of the EU, which requires the unanimous approval of the Member States.
The same agreement also backed the first pillar reform aimed at forcing the world’s 100 largest multinationals to declare their profits and pay more taxes in the countries where they do business.
The delay in EU efforts comes as the Biden administration struggles to persuade Congress to approve tax provisions that would implement both elements of the deal in the United States.
Hungary’s refusal is a particular setback for France, which, as holder of the rotating EU presidency, has focused on passing corporate tax reform over the past his six-month term. The Czech Republic takes over the role from July.
Bruno Le Maire, France’s finance minister, said he would continue to seek a deal on the tax in the final weeks of the French presidency, describing himself as “lucidly optimistic” on the issue.
At the finance ministers’ meeting, he challenged Hungary on the reasons for withdrawing its support, pointing out that Budapest had previously backed the measure even after the start of the war in Ukraine. The commission believed the second pillar would be useful for the EU economy, Le Maire explained, adding that ending “tax dumping across Europe” was a historically important goal.
However, Varga said stalling progress on the Pillar One element of the tax deal, which requires an international treaty to come into force, added to the case for holding back on Pillar Two, because it would harm the “global nature” of the world market. OK.
The EU has not fallen behind its implementing partners, he added.
Mathias Cormann, the secretary-general of the OECD, said last month that the historic agreement, signed in October 2021, would come into force in 2024 at the earliest. It was originally scheduled to be implemented in 2023.
Officials had hoped that the EU’s endorsement of the second pillar reform would boost global momentum towards minimum corporate tax. In the United States, the measures were to be incorporated into Joe Biden’s $1.5 billion “Build Back Better” legislation, but it has been stalled on Capitol Hill since December.
As Democratic lawmakers and the White House attempt to resurrect parts of the bill ahead of the midterm elections in November, it is far from certain they will succeed.
Republican opposition – fueled by skepticism from US business lobbyists – has hardened in recent months, further complicating the prospects for adoption, making approval of the OECD deal even less likely. Janet Yellen, the Treasury Secretary, repeatedly defended its merits in a series of congressional hearings this month.
The EU has been working to translate the second pillar agreement into national legislation through a directive, which would be enacted this autumn at the earliest if it wins the approval of all member states.
EU officials have claimed Poland dragged its feet in part because of the European Commission’s earlier refusal to approve its €36 billion recovery fund offer. However, this month’s agreement on the Polish recovery plan between commission chair Ursula von der Leyen and Polish Prime Minister Mateusz Morawiecki removed that hurdle.
Some officials suspect Hungary is also looking for ways to pressure the commission into approving its own stimulus package, which has been stalled since May last year due to rule of law and corruption concerns.
Expressing frustration with the latest delay, Le Maire said it added to the case for the EU to drop the unanimity requirement on legislation relating to tax matters. “We urgently need to speed up procedures in the EU and simplify decision-making processes,” he said.