European Trio Cast Dissatisfied Shadow Over Global Tax Accord

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An unlikely group of European Union countries from far-flung corners of the bloc accounting for just 4% of its output is resisting worldwide consensus on a revamp of corporate tax.

Hungary, Estonia and Ireland are challenging proposals for a global minimum rate in its current form, casting a shadow over what appeared to be a breakthrough moment on Thursday in OECD talks over harmonizing company levies.

European Trio Cast Dissatisfied Shadow Over Global Tax Accord

The opposition of three countries in an unusual combination that accounts for just 3.6% of the EU population is significant because a unanimous decision there may be needed to craft a legal directive for the world’s largest trading bloc to adopt the initiative.

That plan, backed on Thursday by 130 countries and jurisdictions, would set a minimum tax rate of at least 15% and establish a new regime for sharing revenues gleaned from the profits of multinational firms. The dissent underscores how more time and flexibility may be needed to convince global holdouts just as the discussion shifts to the Group of 20.

Path to a Deal

Key dates that could forge a revolution in global tax

  • July 9-10: G-20 finance ministers meet in Venice
  • Oct. 15-16: G-20 finance ministers meet in Washington
  • Oct. 30-31: G-20 leaders meet in Rome

U.S. Treasury Secretary Janet Yellen called the talks hosted by the Paris-based Organization for Economic Cooperation and Development “an historic day for economic diplomacy,” an assessment that wasn’t shared by her Hungarian colleague.

“The global minimum tax would obstruct economic growth, the planned 15% tax rate is too high and it shouldn’t be levied on real economic activity,” Hungarian Finance Minister Mihaly Varga said in a statement on Friday. Hungary is ready to continue “constructive” talks with OECD partners to reach an “appropriate agreement,” he said.

In Estonia meanwhile, the finance ministry issued a statement saying that the country wasn’t ready to “fully endorse” proposals for a global minimum tax, and in response to questions from Bloomberg, insisted that the current proposal is “still too vague to predict our final position.”

Irish Finance Minister Paschal Donohoe kept up his own dissent to the deal in a Newstalk radio interview on Friday.

“This is a matter of national sensitivity to Ireland and there wasn’t enough clarity and enough recognition of a key issue for us in the text that was presented to me,” he said, adding a note of optimism that he believes “there will be an agreement later on this year that will then be implemented by the European Union.”

‘Big Train’

The European Commission also stressed that discussions are already scheduled to continue until October as it downplayed any discord.

“We’re confident that as the technical details of the proposals are further developed over the coming months, the remaining member states will be able to sign up to the agreement,” Daniel Ferrie, a spokesman for the EU executive, told reporters.

German Finance Minister Olaf Scholz said in a Bloomberg Television interview Friday in Washington, after he met with Yellen: “There is a big train now on the track and I think it will continue to go to its end.”

The tax overhaul is aimed at helping countries share the spoils from multinational firms like Facebook Inc. and Alphabet Inc.’s Google, with implementation targeted for 2023. The rules would curtail tax avoidance by making global enterprises pay an effective rate of “at least 15%” and give smaller countries more tax revenue from foreign firms. Several key countries agreed to the terms, including India, China and Turkey, the OECD said.

Hungary’s Position

Hungarian Prime Minister Viktor Orban, who has slashed corporate tax rates to 9% as part of tax cuts, has called the plan “absurd.” He credits his policies with drawing foreign investments, including carmakers such as BMW and some of the biggest battery plants in Europe.

Such corporate spending has helped the economy outperform and sustain Orban during clashes with EU over the alleged erosion of the rule of law, most recently over a crackdown over LGBTQ rights.

There are plenty of other risks to the global tax deal. Questions over how and when some countries’ unilateral taxes on tech firms’ revenue will be rolled back remain unresolved.

The U.S. Congress could also prove a major obstacle, since the legislature’s approval would be required to formalize Washington’s participation in the system. President Joe Biden’s Democratic party holds razor-thin majorities that are at risk in next year’s midterm elections.

As for Ireland, the government will use the time until October “to finesse their negotiation and make sure they don’t get squeezed between the OECD and the EU,” said Kate Barton, global vice chair of tax at consultant Ernst & Young. “But I think eventually they’re going to come on board. They just want to do it in a way that they’re comfortable with all the ramifications.”

©2021 Bloomberg L.P.

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