Hungary withdraws support for minimum corporate tax in EU


Hungary has blocked progress of the EU’s proposed directive implementing the global minimum corporate tax, in the latest setback to plans for fairer taxation of big multinational companies.

Mihály Varga, the Hungarian minister of finance, told fellow EU ministers at a meeting in Luxembourg on Friday that his country could not support the levy at this stage, in part because of the huge pressure economies and companies are under from the war in Ukraine and rising inflation.

The move — which reverses previous support for the levy from Hungary — came even as Poland withdrew its own veto and gave the green light for the tax to go ahead.

Last year 137 countries backed the introduction of a 15 per cent minimum effective corporate tax rate on large businesses, known as Pillar Two, and Brussels has since been attempting to bring the reform into EU law, which requires unanimous approval of member states.

The same agreement also backed the Pillar One reform aimed at forcing the world’s 100 biggest multinationals to declare profits and pay more tax in the countries where they do business.

The delay to the EU’s efforts comes as the Biden administration struggles to persuade Congress to approve the tax provisions that would implement the accord in the US. 

Hungary’s refusal is a particular setback for France, which as holder of the EU’s rotating presidency has placed heavy emphasis on getting the corporate tax reform through during its six-month stint. The Czech Republic takes over the role from July.

Bruno Le Maire, the French 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” about the issue.

In the meeting of finance ministers he challenged Hungary over its 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 Pillar Two would be helpful for the EU economy, Le Maire argued, adding that putting an end to “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, had added to arguments in favour of holding back on Pillar Two because this would harm the “package nature” of the global agreement.

The EU has not fallen behind its partners when it comes to implementation, he added.

Mathias Cormann, the OECD secretary-general, said last month that the landmark agreement, signed in October 2021, would come into force in 2024 at the earliest. It was originally set for implementation in 2023.

Officials had hoped EU approval for the Pillar Two reform would boost global momentum towards the minimum corporate tax. In the US, measures were intended to be folded into Joe Biden’s $1.5tn “Build Back Better” legislation, but this has been stalled on Capitol Hill since December.

While Democratic lawmakers and the White House are trying to resurrect portions of the bill before midterm elections in November, it is far from clear that they will be successful.

Republican opposition — fuelled by scepticism among lobbyists for corporate America — has hardened in recent months, further complicating the prospects for passage, making it even less likely that the OECD deal will be approved. Janet Yellen, the treasury secretary, has repeatedly defended its merits during a round of congressional hearings this month.

The EU has been working to translate the deal on Pillar Two into domestic laws 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 that Poland had dragged its feet in part because of the European Commission’s earlier refusal to approve its €36bn recovery fund bid. However, this month’s deal on the Polish recovery plan between commission president Ursula von der Leyen and Polish prime minister Mateusz Morawiecki removed that obstacle.

Some officials suspect Hungary is also seeking ways of pressuring the commission into approving its own recovery plan, which has been stuck since May of last year because of rule of law and corruption concerns.

Expressing his frustration with the latest delay, Le Maire said it added to arguments for the EU to drop the requirement for unanimity on legislation related to tax matters. “We need urgently to speed up procedures in the EU and simplify decision-making processes,” he said.


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