Hungary has blocked an EU directive that would impose a 15% minimum tax on multinational corporations, arguing the levy would deal a “low blow” to European competitiveness and endanger jobs.
The levy would apply to large companies with annual revenue exceeding €750 million.
The tax reform is part of a global deal achieved last year at the Organization for Economic Co-operation and Development (OECD). It has been endorsed by 136 countries representing more than 90% of global GDP.
The coronavirus pandemic injected momentum into the talks as governments around the world scrambled for ways to boost their fiscal revenues and finance the costly recovery.
The reform is estimated to generate over €140 billion in additional income for public suitcases every year.
The OECD deal needs to be transposed into EU law through a directive so as to become effective across the bloc. But tax matters are one of the few policy areas where unanimity is required, making it possible for a single country to paralyse the entire agreement.
“Europe is in deep enough trouble without the global minimum tax,” Hungarian Foreign Minister Péter Szijjártó said this week. “We’re not supporting a hike in taxes for Hungarian companies and we’re not willing to put jobs in danger.”
Szijjártó also told US Secretary of State Antony Blinken that the 15% tax would “mean another low blow for European competitiveness” in the midst of the Ukraine war, even if the deal is meant to be applied at the global level, not exclusively to Europe .
Hungary currently offers a 9% corporate tax rate, the lowest across the European Union.
Hungary, Estonia and Ireland were initially opposed to the OECD deal, which aims to restore a level playing field among nations after years of competing against each other in what has been described as a “race to the bottom” of tax rates.
The three nations later secured guarantees to mitigate their concerns, including a lengthy 10-year transitional period. The antagonism then shifted to Poland, but the government recently relented after its long-stalled recovery plan was endorsed by the European Commission.
Hungary’s recovery plan remains blocked over concerns related to corruption, cronyism and fraud.
‘Indispensable to get rid of unanimity’
National ministers were taken by surprise this week when Hungary brought back its opposition to the deal, one of the main priorities of the French presidency of the EU Council.
French Finance Minister Bruno Le Maire was determined to bring all the 27 member states on board during a high-stakes meeting on Friday, but his push was thwarted by the “no” of the Hungarian representative.
“Poland has agreed to the adoption of this directive. But, at the same time, there was a setback because Hungary refused to accept [the deal],” Le Maire said at the end of the ministerial meeting.
“There’s progress and there are setbacks,” he added. “This is the charm of negotiations.”
Le Maire described the tax deal as a “major text” that guarantees “more justice and efficiency” in taxation.
“We have to draw conclusions from these marathon discussions,” Le Maire said. “It is indispensable to get rid of unanimity in tax matters and move to qualified majority and give the EU more clout.”
“We’re still missing one member state from unanimity,” said Paolo Gentiloni, European Commissioner for the economy, speaking next to the minister. “If we wanted a case history that unanimity is a difficulty in many circumstances, this case history is here. It’s difficult to have a clearer one.”
The French presidency had hoped Friday’s meeting could be the chance to officially endorse the directive and obtain a political victory for President Emmanuel Macron. The presidency is set to end on 30 June, but Le Maire stressed he was resolved to achieve a breakthrough before then.
Budapest even pushed to exclude the item from Friday’s agenda, Euronews has learned, but his request was not accepted, forcing a debate between member states.
“This veto has nothing to do with the [deal] or its technical issues,” said Le Maire. “There’s nothing to justify this veto. Hungary had already agreed to this. It was a surprise.”
The Czech Republic is set to take over the EU Council’s rotating presidency on 1 July and will be tasked with bringing the discussions to a successful conclusion.
The OECD wants the new corporate tax to be effective from 2023 onwards.
The EU also has to negotiate the second element of the global reform: a regime to re-allocate taxing rights from the country where the multinationals have their headquarters – for example, Ireland – to the countries where the business activity is physically performed.