Germany has announced its intention to press ahead with a key part of the OECD’s global tax deal, in a move that pressures Hungary to drop its resistance to the EU’s proposals. EU which set a floor of 15% on the tax large companies pay on profits.
Attempts to adopt a European directive aimed at introducing part of the OECD agreement, signed in 2021 and aimed at eradicating the use of tax havens by multinationals, have been blocked twice – from first by Warsaw, then by Budapest.
In order to break the deadlock, Berlin said on Sunday it would start preparing national rules to enforce the tax floor. The move, which comes ahead of an informal meeting of finance ministers from the region later this week, is seen by tax insiders as an attempt to force Hungary to accept EU rules or risk losing potential revenue.
Sven Giegold, secretary in the Federal Ministry for Economic Affairs and Climate Action in the German coalition government, said the Twitter “we must no longer sit idly by and see how a veto by [Hungary’s prime minister Viktor] Orbán is costing the German state billions.
“If we don’t move forward with implementing comprehensive minimum corporate taxation in Europe, the hard-won deal risks slipping away. We cannot allow this. That is why we are now acting on our own to finally uphold European law.
To eliminate tax avoidance and end a race to the bottom in corporate taxation, 136 countries have agreed to implement the Global Tax Floor for companies with revenues over €750 million at an OECD meeting last October.
Progress at the EU level is seen as essential to the proper functioning of the global minimum tax due to the number of large multinational corporations headquartered in the region. The position of major European economies became even more important last month after the United States abandoned one of the principles of the agreement – cracking down on tax havens – when it introduced a minimum tax of 15% which does not would not apply to a country. country basis.
“This is a great moment for the global minimum tax,” said Pascal Saint-Amans, director of tax administration at the OECD. “I wouldn’t be surprised if the French soon followed or coordinated with the Germans.”
The European Commission produced a draft directive for the tax in December but progress is currently blocked by Hungary. The next opportunity to vote on the directive will be at the Ecofin meeting of EU economy and finance ministers on October 4.
“For Germany to go ahead with minimum taxation could be a breakthrough at European level,” said Rasmus Andresen, member of the European Parliament’s Economic and Monetary Affairs Committee.
“Germany’s decision. . . is pressuring Hungary to block the deal with the EU,” Andresen said. “We cannot wait for laggards or be thwarted by national vetoes. . . others could and should follow suit.
Changes to tax rules generally require the unanimity of EU member states. However, Andresen called for an implementation of the global minimum tax through a process called “enhanced cooperation”, meaning other member states could go ahead even without Hungary’s approval.
The global minimum tax only needs a critical mass of countries to implement it for it to succeed.
Beyond the EU, the UK has already published a global minimum tax bill, known as “pillar two” of the global tax deal.
However, the government of new Prime Minister Liz Truss has not yet decided to block its implementation.
“It would complicate things for Germany, but not in a decisive way,” said Grant Wardell-Johnson, global head of tax policy at KPMG. “I don’t think Germany would change its position because of the UK.”
Additional reporting by Sam Fleming