Hungary’s finance minister vetoed an EU directive on a global minimum corporate tax, leaving the outgoing French EU Presidency without its crown achievement. The move is seen as yet another front in Hungary’s standoff with the bloc.
Hungarian Finance Minister Mihály Varga blocked a European Union initiative to implement a global minimum corporate tax rate of 15% in the bloc. Budapest dropped the unexpected bombshell after the French EU presidency had already overcome stiff opposition from Poland.
Tax resolutions within the EU require unanimity to pass, giving any member country veto power. The principle of unanimity may soon face a revolt, however, after Hungary followed Poland’s example of blocking the carefully crafted tax deal.
Standing up to tax evasion
Countries in the Organization for Economic Co-operation and Development (OECD) have come up with a plan to introduce a 15% global minimum tax to prevent mammoth global corporations from evading taxes. The tax would be levied on companies with annual revenues of over EUR 750 million. The deal would make it harder for such firms as Amazon, Alphabet's Google, or Meta's Facebook to avoid tax by booking profits in low-tax jurisdictions. The plan enjoys widespread support among OECD members with 136 countries endorsing the tax reform. The levy is expected to generate approximately EUR 140 billion in revenue for countries around the world and around EUR 48 billion for the EU.
Under the agreement, countries would have the right to offer lower corporate tax rates than the global minimum but other countries would have the right to collect the difference.
In addition to Hungary, Ireland and Estonia are the other low-tax countries in the EU. They have also voiced criticism of the minimum tax but refrained from vetoing the reform in light of the 10-year transition period offered by Brussels.
Blow to competitiveness
Hungary has the lowest corporate tax rate in the European Union at 9% cent, which the government seems intent on guarding as a competitive advantage. Hungarian Prime Minister Viktor Orbán had already warned that Hungary would veto the European tax directive. Foreign Minister Péter Szijjártó said that Hungary was not supporting a hike in taxes for Hungarian companies as such a move would put jobs in danger. Szijjártó also told US Secretary of State Antony Blinken that the minimum tax would strike “another low blow at European competitiveness” in the middle of the war in Ukraine.
Hungarian justice minister Judit Varga told journalists that Hungary thought the timing of the deal was wrong. "We don't think it is the right time to think about a global tax," Varga said, adding that the consequences of the war in Ukraine are starting to take a very heavy economic toll.
At the same time, the government in Budapest recently introduced a set of special taxes for companies as the Cabinet seeks to plug budget holes.
Political analysts believe that Hungary's opposition to the minimum tax is a negotiating tactic to put pressure on the EU over its ongoing institutional conflicts. The country’s access to the EU recovery fund has been suspended by the EU Commission because of concerns over systematic corruption.
Politics at work
EU economy commissioner Paolo Gentiloni urged Hungary to reconsider its opposition to the global tax and noted that that EU countries and the parliament will not give up on an agreement. The Italian commissioner said Hungary raised its objection in the last minute, while it had endorsed the agreement at international level, and still supported the EU deal in May. "The current context of the war, mentioned by Hungary, has affected us all," Gentiloni said, adding that extra tax revenue would help the entire EU economy.
French minister for Europe, Clement Beaune, told MEPs Paris will work until the last moment of its six-month EU presidency (ending in June) to reach a deal. "Politically, technically speaking, we were ready to adopt this file, our citizens expect strong measures," the French politician said, adding that he "regrets" Hungary's veto. Beaune also said his government is ready to scrap unanimity on tax issues in the bloc, to avoid one country blocking an EU move. "Hungary is vetoing this not because of the specific issue of the tax deal itself, but [they] want to flex their political muscles because of the other issues," liberal Irish MEP Billy Kelleher said, whose country was one of the last to sign up to the deal, adding that "Hungary is blackmailing Europe."
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