Global corporate taxation: France says EU can circumvent Hungarian veto

France will consider overriding Hungary’s veto on a global corporate tax, an official said after the measure was defeated last week.

“Minimum taxation will be implemented in the coming months without or with Hungary,” French Finance Minister Bruno Le Maire told reporters on Thursday.

“Everyone knows that Hungary’s ultimate lockdown has absolutely nothing to do with minimum taxation,” he continued, adding that “Europe can no longer be held hostage to the ill will of some of its members.

He said he was now working on “alternative solutions” with Paolo Gentiloni, the European Commissioner for the Economy and that “we will explore, we have started to explore, other possibilities to implement Pillar II [the other name for the Global Corporate Tax] without having recourse to a directive adopted unanimously.”

The agreement led by the Organization for Economic Co-operation and Development (OECD) to impose a minimum tax of 15% on multinational companies was approved by 136 countries last year. Together, they represent over 90% of global GDP.

But Hungary, which initially backed the deal, then announced its opposition, arguing that the tax would deal a “low blow” to European competitiveness as economies around the world suffer from high inflation and a cost-of-living crisis linked to Russia’s war in Ukraine. .

While an EU finance directive requires unanimity to be rolled out, Budapest’s veto has derailed its adoption in all 27 member states.

Enhanced cooperation

However, one day before the handover to Prague, which will then assume the presidency of the EU, Le Maire affirmed: “I will not let go”.

The lack of agreement on this dossier has cast a shadow over the legacy of the French presidency.

“I had US Treasury Secretary Janet Yellen on the phone yesterday to let her know that we are exploring other avenues,” he also said.

The solution envisaged by Paris is to set up “enhanced cooperation” as permitted by Article 329 of the Treaty on the Functioning of the European Union (TFEU).

This instrument is intended to be used only in areas not included in the areas of exclusive competence on which only the EU is able to legislate and adopt binding acts. These include issues relating to the establishment of the competition rules necessary for the functioning of the internal market and monetary policy. Matters falling within the common foreign and security policy cannot be the subject of enhanced cooperation either.

To move forward, enhanced cooperation should first be recommended by the Commission and supported by MEPs.

Small problem, it would then have to be supported unanimously by the European Council, where Hungary could potentially oppose its veto again.

But Le Maire also said that enhanced cooperation is “one of the avenues we are working on with Paolo Gentiloni”.

“A priority for us”

According to Zach Meyers, senior researcher at the Center for European Reform (CER), “if the French presidency backs out of an EU directive to implement minimum global corporate tax due to Hungary’s veto, then any alternative will be far less legally robust.

“The European Court of Justice (ECJ) has already ruled that EU Member States cannot prevent companies from taking advantage of lower tax rates available in other Member States: when the UK was member of the EU, he proposed to do so, and the regime was overthrown.”

“The Global Minimum Corporate Tax is similarly structured. If only certain EU member states signed on, those EU member states would be allowed to impose a ‘top-up’ tax on a company, if that company paid below the minimum corporation tax in another EU member state,” he told Euronews.

Meyers pointed out that although the ECJ may try to distinguish Pillar II from the earlier UK case, “on the basis of existing case law, the ECJ may well overrule the French plan”.

The Commission, for its part, stressed on Thursday that “we are absolutely committed to the implementation of this agreement concluded at international level”.

“Implementing Pillar II is a priority for us,” Daniel Ferrie, Commission spokesman for taxation, told Euronews. “Our plan remains of course to keep working on that, to achieve unanimity and that’s where we are at the moment.”

Laura T. Thrasher