U.S. and European officials are trying to instill new momentum into the global initiative to set up a minimum corporate tax, but find it difficult to navigate a series of obstacles, most notably the Democrats’ tight control of Congress and Hungary’s opposition.
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Nearly 140 states agreed last year to impose a minimum tax of 15% on large corporations, thus paving the way for the biggest change in tax laws in a century. Reaching this point took years of negotiations that at times seemed close to collapse. Now, eight months later, there has been little progress on changing national rules for tax implementation.
Hungary’s decision to withdraw its support from the minimum tax means that the EU will not be able to move forward with tax implementation plans in 2024, even though the other 26 member states of the bloc support the move.
Hungary’s position is a source of new frustration for large European countries that are the most ardent supporters of the new tax, including France, which holds the presidency of the European Union in the first half of the year and hoped to take advantage of that role to advance tax implementation.
French President Emmanuel Macron spoke with Hungarian Prime Minister Victor Urban on the issue at a meeting of EU leaders on Friday and later told reporters that other bloc companies would work to remove the veto, although he added that they would only act to a certain extent.
“We can be reasonably involved but not beyond that,” Macron said.
Hungary may try to obtain concessions in other areas
Informal discussions are likely to continue, sometimes in unreasonable places. Hungarian Foreign Minister Peter Cierto said on Friday that he would continue talks on the minimum tax at a meeting of NATO members in Madrid on Wednesday and Thursday.
Hungary emphasized its new position by passing a resolution in parliament opposing the minimum tax. The government claims that the uncertainty regarding the economic forecasts in Europe following the Russian invasion of Ukraine make the period an unsuitable period for raising taxes.
Hungary may also try to obtain concessions in other areas where it has a conflict with the EU. In the past, Poland opposed the minimum tax for various reasons, but recently changed its perception.
The change came after US Treasury Secretary Janet Yellen’s visit to Warsaw and the EU agreed to release 35.4 billion euros, about $ 37.4 billion, in loans and grants to help the country recover from the corona plague. The EU is withholding funds intended for Hungary.
Progress in implementing the minimum tax has been slow in the U.S. Democrats in Congress have said they plan to promote the collection of the minimum tax from companies located in the U.S., even while Hungary’s opposition prevents the EU from acting similarly.
“We shoot ourselves in the foot”
“Poland and Hungary are always trying to find some point of leverage to squeeze something out of it,” said House of Representatives Ron Kind (Democrat from Wisconsin). “I think in the end they’re going to change their minds. I mean, I’m not sure exactly what they’re asking for, but I’m sure they’re asking for something right now.”
Senator Rob Portman (a Republican from Ohio) said EU delays should make the U.S. rethink its approach. Others will have time to act.
“We’re shooting ourselves in the foot when we say we’re going to consider taxing our companies while other states do not,” Portman said.
In the U.S., the minimum tax is expected to advance only as part of President Biden’s broader fiscal priorities, which cannot progress in Congress without Republican support. Even among Democrats, the effort is delayed for several reasons, including complaints from Senators Joe Manchin (Democrat from the West Virginia) regarding the scope and details of the proposed spending plans.
Manchin and other moderate Democrats have expressed little concern about the changes in international tax, and government officials have pushed for the U.S. part of the international agreement to be included as part of any plan to increase revenue the Democrats will make.
There may be benefits to being the first country to apply the tax. Under the terms of the 2021 agreement, a state that makes the move can levy taxes on the profits of companies based elsewhere to make sure it reaches a 15% target if no tax is levied independently in those other places.
Yellen, at the June 20 event, said she would be happy to see the US act first and added that the EU was “very close to achieving that”.
Ultimately states “that say they do not want to move forward with it, will see their companies pay taxes anyway and they do not benefit from this tax collection,” Yellen said.
“It was never meant to be what happens in the US and I very much hope we will be first and second,” she said, referring to the US and the EU.
Andrew Duhren participated in the preparation of the article.