Hungary has blocked the progress of the proposed EU directive implementing the global minimum corporate tax, in the latest setback in plans for fairer taxation of large multinational corporations.
Hungarian Finance Minister Mihály Varga told other EU ministers at a meeting in Luxembourg on Friday that her country could not support the tax at this stage, in part because of heavy pressure from the EU. economies and businesses by the war in Ukraine and rising inflation.
The move, which reverses previous support for Hungary’s tax, came as Poland withdrew its own veto and gave the green light for the tax to go ahead.
Last year, 137 countries supported the introduction of a minimum corporate tax rate of 15 percent for large companies, known as the second pillar, and Brussels has been then trying to incorporate the reform into EU law, which requires the unanimous approval of member states.
The same agreement also supported the Pillar 1 reform aimed at forcing the world’s 100 largest multinationals to declare 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 pass fiscal provisions that would implement both elements of the agreement in the U.S.
Hungary’s refusal is a particular setback for France, which, as holder of the rotating EU presidency, has placed a lot of emphasis on approving corporate tax reform during its six months. The Czech Republic takes office from July.
Bruno Le Maire, the French finance minister, said he would continue to seek a tax deal in the final weeks of the French presidency, and described himself as “lucidly optimistic” on the issue.
At the meeting of finance ministers, he challenged Hungary on the grounds for withdrawing its support, noting 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 to the EU economy, Le Maire argued, adding that ending “fiscal dumping in Europe” was a historically important goal.
However, Varga said that stopping progress on the element of the first pillar of the fiscal agreement, which requires the entry into force of an international treaty, has added to the arguments in favor of halting the pillar two because this would harm the “package nature” of the global system. agreement.
The EU has not lagged behind its partners in terms of implementation, he added.
OECD Secretary-General Mathias Cormann said last month that the historic agreement, signed in October 2021, would enter into force in 2024 as soon as possible. It was initially set for implementation in 2023.
Officials hoped that EU approval for the reform of the second pillar would drive the global push towards the minimum corporate tax. In the United States, it was intended to incorporate the measures into Joe Biden’s $ 1.5 trillion “Rebuild Better” legislation, but that has stopped at Capitol Hill since December.
While Democratic lawmakers and the White House are trying to resurrect parts of the bill ahead of the November midterm elections, it is far from clear that they will succeed.
The Republican opposition, fueled by skepticism among American business lobbyists, has hardened in recent months, further complicating the prospects for approval, making it even less likely that the deal ‘OECD approved. Janet Yellen, the secretary of the Treasury, has repeatedly defended her merits during a round of hearings in Congress this month.
The EU has been working to translate the agreement on the second pillar into national law through a directive, which would be enacted this autumn as soon as it gets the approval of all member states.
EU officials have claimed that Poland had dragged its feet in part due to the European Commission’s previous refusal to approve its € 36 billion recovery fund offer. However, this month’s agreement on the Polish recovery plan between Commission President Ursula von der Leyen and Polish Prime Minister Mateusz Morawiecki removed that obstacle.
Some officials suspect that Hungary is also looking for ways to pressure the commission to approve its own recovery plan, which has been blocked since May last year due to rule of law and corruption issues.
Expressing his frustration with the latest delay, Le Maire said they are adding to the arguments for the EU to withdraw the unanimity requirement in tax-related legislation. “We urgently need to speed up procedures in the EU and simplify decision-making processes,” he said.