European Veto Could Hinder Global Tax Reform

Hungary, Poland and Estonia are among European nations that are unhappy with plans to launch a minimum global corporate tax rate of 15 percent as of January 2023.

Some EU countries have slammed the bloc’s efforts to introduce a global minimum corporate tax rate of 15 percent within 12 months into disarray. Finance ministers from at least three nations; Estonia, Hungary and Poland, protested on Tuesday the planned timetable, which G20 countries agreed to last October as part of a wider overall corporate tax reforming rules.

The ministers also demanded the initiative be contingent on the rollout of a global levy on the world’s 100 biggest companies, due to be rubber-stamped in June and introduced in 2023. Their concern is that US President Joe Biden will not find the Congressional support he needs to implement the same rules, leaving Europe at an economic disadvantage.

The protests from Tallinn, Budapest and Warsaw have imposed a serious challenge to the EU’s bid to implement the rules in a timely fashion, as EU tax agreements require unanimous support.

“We believe that the global minimum tax rules can only be implemented if other countries also live up to their political commitments,” Hungary’s minister, Mihály Varga, told his EU peers at this month’s meeting of EU finance ministers in Brussels.

The tax rate, known as Pillar 2, is part of a two-pronged global agreement that the Organization for Economic Cooperation and Development (OECD) brokered last fall to obliterate tax havens and ensure that the world’s multinational firms — including tech giants — pay their fair share in tax. The other part of the package, called Pillar 1, would require that the biggest firms pay tax on where they operate, not where they’re based.

The European Commission translated Pillar 2 into an EU bill in late December in the hope of a swift agreement within the coming months. A bill for Pillar 1 is set to come in July after global policymakers have agreed and signed a “multilateral convention” at the OECD.

A delay would also tarnish the bloc’s global image as a faithful enforcer of international agreements against tax dodging — a prospect that French Finance Minister Bruno Le Maire struggled to swallow.

“You can’t accept an accord from the OECD, and when that accord is written into a directive, exactly with the same terms, say the accord is not valid anymore,” the French minister said ahead of the meeting, which he’ll chair for the next six months as part of a rotating six-month EU presidency. “There’s something incomprehensible there.”

“We spent almost five years to find an agreement at the OECD on international taxation,” Le Maire added. “I think that the EU has to show that it is capable to take the leadership on this subject and to adopt the directive quickly.”

Tallinn, Warsaw and Budapest were alone in their open calls for linking the OECD’s two pillars as a hedge against the US, as the two initiatives are legally independent from one another. But the Czech Republic, Bulgaria, Malta, Slovenia and Sweden were sympathetic to concerns over the practical hurdles to writing Pillar 2 into national statues in such a short period of time.

Sweden, for example, will struggle with the January 2023 deadline due to “our constitutional law-making requirements,” the country’s minister, Mikael Damberg, said while underlining Stockholm’s support for the initiative “I’m confident that a solution to this problem can be found”.