Hungary has voted against an EU regulation that would impose a 15% minimum tax on multinational businesses, claiming that the tax would be a “low blow” to European competitiveness and put jobs at risk.
Large enterprises with annual revenue above €750 million would be subject to the charge.
The tax overhaul is part of a worldwide agreement reached by the Organization for Economic Cooperation and Development last year (OECD). It has the support of 136 countries, accounting for more than 90% of global GDP.
As governments throughout the world raced for methods to raise their fiscal receipts and pay for the costly recovery, the coronavirus epidemic injected energy into the talks.
Every year, the change is expected to generate about €140 billion in new revenue for the government.
To take effect across the EU, the OECD agreement must be implemented into EU law via a directive. However, tax policy is one of the few areas where unanimity is necessary, making it feasible for a single country to bring the entire agreement to a halt.
This week, Hungarian Foreign Minister Péter Szijjártó declared, “Europe is in deep enough difficulty without the global minimum tax.” “We are not in favour of raising taxes on Hungarian businesses, and we are not willing to jeopardize jobs.”
In the middle of the Ukraine conflict, Szijjártó also told US Secretary of State Antony Blinken that the 15% tax would be “another low blow for European competitiveness,” even though the accord is designed to apply globally, not just to Europe.
Hungary now has the lowest corporation tax rate in the European Union, at 9%.
The OECD pact, which tries to restore a fair playing field among states after years of fighting against one other in what has been described as a “race to the bottom” of tax rates, was initially rejected by Hungary, Estonia, and Ireland.
Following that, the three countries obtained promises to alleviate their fears, including a lengthy 10-year transition period. The focus of hostility switched to Poland, but the government finally bowed out when the European Commission backed its long-stalled recovery plan.
Hungary’s economic recovery strategy has been stalled due to worries about corruption, nepotism, and fraud.
‘Necessary to eliminate unanimity’
The return of Hungary’s opposition to the accord, one of the primary priorities of the French presidency of the EU Council, caught national ministers off guard this week.
During a high-stakes meeting on Friday, French Finance Minister Bruno Le Maire was determined to bring all 27 member states on board, but his efforts were hampered by the Hungarian representative’s “no.”
“Poland has consented to the directive’s adoption. However, there was a setback when Hungary refused to accept [the agreement] “At the conclusion of the cabinet meeting, Le Maire noted.
He continued, “There is the development and there are setbacks.” “This is the allure of these talks.”
The tax agreement, according to Le Maire, is an “important test” that ensures “greater justice and efficiency” in taxing.
“From this long conversation, we must draw conclusions,” Le Maire remarked. “Getting away of unanimity in tax matters and moving to the qualified majority is essential to give the EU more strength.”
“We’re still one member state away from unanimity,” remarked Paolo Gentiloni, the European Commissioner for the Economy, who stood next to the minister. “This case history is present if we needed proof that unanimity is difficult in many situations. It’s difficult to get a clearer picture.”
The French presidency had thought that Friday’s meeting would be an opportunity to formally adopt the directive and give President Emmanuel Macron a political success. The presidency will finish on June 30, but Le Maire has stated that he is determined to make a breakthrough before then.
According to Euronews, Budapest even attempted to have the item removed from Friday’s schedule, but his request was denied, forcing a dispute among member states.
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“This veto has nothing to do with the [agreement] or its technical concerns,” Le Maire stated. “There is no justification for this veto. This had already been agreed upon by Hungary. It was unexpected.”
On July 1, the Czech Republic will assume the rotating chair of the EU Council and will be responsible for bringing the debates to a successful finish.
The OECD wants the new company tax to go into effect in 2023.
The EU must also negotiate the second component of the worldwide reform: a system for redistributing taxing rights from multinational headquarters nations – such as Ireland – to countries where economic activity is physically executed.
