Poland blocks EU decision to join minimum corporate tax

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Poland has blocked progress on an EU directive to implement the comprehensive minimum corporate tax agreed last year, delaying the bloc’s efforts to pass the measure.

In a landmark agreement in October last year, 137 countries backed the introduction of a new minimum effective tax rate of 15% on large corporations, known as pillar two.

The reform is expected to increase global tax revenue by more than $150 billion a year. The same agreement also backed forcing the world’s 100 largest multinationals to declare their profits and pay more taxes in the countries where they do business, known as “pillar one”.

In order to make the agreement a reality, countries must enshrine the minimum tax in their national legislation. The EU plans to do this via a directive and requires unanimity from all member states for the measure to be implemented.

However, on Tuesday Poland disrupted the plans by opposing the proposed directive in a Meet EU finance ministers in Luxembourg.

Magdalena Rzeczkowska, Poland’s finance minister, argued that the country could not support minimum taxation without first having “legally binding” assurances that reforms targeting the 100 largest companies would be passed.

This part of the agreement obliges the countries to agree on a multilateral convention, and the negotiations are progressing more slowly than the plans for the global minimum tax.

Rzeczkowska said: “We are convinced that we must be aware of the insufficiency of imposing an additional burden on European companies under the second pillar without guaranteeing that the digital giants are fully taxed under the first pillar.”

The move sparked frustration in other member states, including France, whose finance minister Bruno Le Maire led negotiations on the directive under France’s EU presidency, which ends in June.

He pointed out that the agreement had been supported by all EU member states, including Poland, internationally through the OECD negotiations. The council had “addressed” Poland’s concerns by including language that signaled the EU’s intention that the two parts of the deal work as a whole.

“I will say very clearly that I am completely unconvinced by the Polish argument,” Le Maire told the council meeting. All member states have been working towards consensus, he added, saying he “deeply regrets[ed] that Poland does not understand this”.

Speaking after the Economic and Financial Affairs Council meeting, Valdis Dombrovskis, the committee’s executive vice-president, said he was unable to interpret the motivations and justifications for the Poland. But he hoped there would be an agreement at next month’s meeting.

“This mystery must be discussed with Warsaw, rather than with the French presidency,” added Le Maire.

In addition, Poland is engaged in negotiations with Brussels to release its share of EU recovery funds.

This development means that the implementation of the global tax agreement remains blocked on both sides of the Atlantic.

Legislation contained in US President Joe Biden’s “build back better” bill, which would align the US tax system with the international proposal for a global minimum tax, has been delayed due to the Democrats’ inability to gain support from within the party.

No bill has yet been presented in Washington and Brussels on the first pillar.

However, when asked if the global tax deal was “in jeopardy” due to obstacles in the US and EU, Le Maire said the determination to pass the deal remained strong.

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