EU global minimum tax plan hits Hungarian road

Diving brief:

  • The European Union (EU), which has brought together its 27 countries to agree to implement the global minimum tax rules of 15% which is at the center of the Organization’s Pillar 2 initiative Economic Co-operation and Development (OECD), failed to win the needed unanimous support as Hungary became the latest country to fall out of line, according to Grant Wardell-Johnson, global head of tax policy at KPMG International.
  • Previously, the only adversary was Poland, but at the meeting of the EU’s Economic and Financial Affairs Council (Ecofin) earlier this month, Hungarian Finance Minister Mihaly Varga revoked his country’s previous support , citing the economic impact of the Russian-Ukrainian war, worrying about the uncertain economic consequences. as well as the possible damage caused by the late implementation of the measures, according to a PwC report from June 17.
  • “The factors preventing Hungarians from supporting the proposal will be a tricky hurdle for the EU Council to overcome. None of the reasons given (the war in Ukraine, the difficult economic environment with rising interest rates, fears of being a frontrunner on pillar two rules) are likely to be easily resolved with any measure of speed, if indeed the EU has any control over these pressure points,” according to the PwC Tax Policy Alert report.

Overview of the dive:

If the EU wins support for a global minimum tax directive, it will likely have wider implications far beyond Europe. A success there could help U.S. supporters of the initiative, like Treasury Secretary Janet Yellen, who have been struggling with flagging momentum since Build Back Better legislation that includes the global minimum tax stalled in the Senate.

The minimum tax is at the center of the so-called 2 piece pillar the OECD Base Erosion and Profit Sharing (BEPS) project which aims to tackle tax evasion and close down tax havens. In October, 137 countries reached a multilateral agreement to overhaul global tax rules. The new tax regime will apply to companies with an annual turnover of more than 750 million euros ($850 million) and will generate around $150 billion in additional global tax revenue, according to the OECD.

Its implementation will take years. Even if the EU directive is approved, the group has postponed its effective date to December 31, 2023 from January 1, 2023, according to PwC. Meanwhile, countries with no more than 12 multinational companies that are affected by the rules could choose to delay adoption for six years.

Poland finally backed the global minimum tax following a visit by Yellen to Warsaw in May and an EU deal to release the equivalent of $37.4 billion to help the countries to recover from the pandemic, according to a Monday article in the Wall Street Journal.

Similarly, Hungary’s 11th-hour opposition could be designed to wrest other advantages from the EU, Wardell-Johnson said in an email. “This could be seen as a strategy [maneuver] to obtain concessions in other areas with the EU, mainly on rule of law violations and disputes over EU funding,” he wrote, adding that it could take several months. . But Wardell-Johnson remains optimistic that the EU will eventually move forward with the Pillar 2 directive despite the latest roadblock. “I don’t see this as a major obstacle,” he wrote. It’s “no longer a bump in the road”.

Laura T. Thrasher