Poland and Hungary want to slow French push for minimum tax directive

French minister of finance Bruno Le Maire. [European Union]

The EU directive to implement a minimum corporate tax rate of 15% faces resistance from Poland and Hungary, who have insisted on linking it to another part of October 2021’s OECD tax deal. The challenge calls into question the French government’s goal of reaching an agreement by March 2022.

On Tuesday (18 January), EU finance ministers met in Brussels to discuss the directive proposed by the Commission in December, following the international agreement in October to introduce the 15% minimum effective corporate tax rate.

The October agreement was based on two pillars. Pillar one reallocates a part of the taxes paid by large and highly profitable multinationals from the jurisdiction of their headquarters to the jurisdiction in which the turnover is made, while pillar two introduces a minimum effective corporate tax rate of 15%.

While for pillar one, a technical agreement is yet to be reached at the OECD level, pillar two can already be implemented by the signatories of the OECD tax deal. All EU member states are among the signatories.

Commission presents directives against tax competition and shell companies

The EU Commission presented its proposal for a directive to implement the minimum tax in the EU along with a directive that should make it hard to evade taxes through shell companies.

Both the European Commission and the French government, which holds the presidency of the EU Council in the first half of 2022, want to implement the directive as fast as possible.

French finance minister Bruno Le Maire said he wanted to reach an agreement among ministers by March 2022 so that the directive could take effect in January 2023.

“For the credibility of all of us at this table […], it is important that we adopt this directive quickly,” he told his fellow finance ministers at Tuesday’s meeting.

Credibility or leverage?

The Polish and the Hungarian finance ministers disagreed, however. They fear that moving too fast on the minimum corporate tax might put the EU in a weaker position to demand the implementation of pillar 1 of the OECD tax deal.

“Pillar 1 and pillar two are inherently linked, and we do not see any possibility to separate them within the EU”, the Polish minister Tadeusz Koscinski told EU finance ministers.

“We need to insist on putting in place legal safeguards that both pillars are implemented,” he said, arguing that the two pillars should be legally linked.

The Hungarian minister of finance, Mihály Varga, backed the Polish argument.

“If the European Union proceeds with the implementation of pillar two irrespective of the international developments on the implementation of pillar 1, that will endanger the political leverage [of the EU] on third countries to effectively implement pillar 1,” he said.

Unanimity required

At a press conference after the meeting, Le Maire argued that although pillar one and pillar 2 belonged together as a package, there were significant legal differences between the two pillars. Moreover, he reaffirmed the goal to implement both parts of the OECD agreement by January 2023.

As the directive concerns tax matters, it will need the unanimous support of European governments to pass and come into effect.

In addition to Poland and Hungary, Malta and Estonia also raised doubts on the minimum tax directive.

Meanwhile, Ireland backed the directive even though it had long been opposed to the agreement at the OECD level.

136 countries agree on international tax reform

More than 100 countries agreed on Friday (8 October) a reform of the international tax regime intended to make it fit for the digital age and respond to longstanding concerns about corporate tax evasion.

[Edited by Nathalie Weatherald/ Alice Taylor]

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