The idea of a new global tax rate has made headlines for months. Over the summer, Hungary blocked the deal proposed by the EU. Now, Brussels plans to go ahead without Hungary.
As a refresher, the EU voted on a 15% minimum tax on multinational corporations back in June. However, Hungary blocked the directive. The country argued that this minimum tax would endanger jobs and hurt European competitiveness.
More on the Tax
The minimum tax in question was designed to apply only to large companies. To qualify for the minimum tax requirement, companies would need an annual revenue of over 750 million euros. The tax reform was part of the OECD’s global deal. As of June, 136 countries endorsed the 15% global minimum tax. These countries accounted for over 90% of the world’s GDP.
The tax reform was predicted to generate more than 140 million euros for public governments.
The issue with Hungary voting against the group comes down to the need for unanimity. The EU requires unanimity in regard to taxes, as well as a handful of other areas. This means that a single country has the ability to stop a tax-related directive. Apparently, this is what Hungary seemed to do.
Poland Was Previously a Challenge
While Hungary is currently in the limelight with its veto, Poland had the same stance. Poland was the one to block previous attempts in April, but by June, the dispute had been settled. It was only then that Hungary showed its opposition.
Critics say that Poland’s initial disagreement was because of a rule-of-law dispute. The Commission had been withholding Poland’s post-pandemic recovery fund. Experts assume that Hungary has the same reason for disagreeing, as Hungary still needed access to its own recovery fund.
An Enhanced-Cooperation Deal Is the EU’s Solution
Last month, the European Commission came up with a solution: an “enhanced-cooperation deal.” With that deal, Hungary would no longer have a veto vote. Instead, enhanced cooperation means that unanimity is no longer a requirement.
Testing the Waters
The idea was first pitched through countries being asked how they felt about the global tax rate. On September 7, Politico reported that various officials on the European Commission were asking member countries how they would feel about enhanced cooperation.
Through the countries’ responses, the European Commission would be able to gauge support for the measure before its implementation. Ideally, there would be a decision to try enhanced cooperation before the monthly ECOFIN meeting.
It Will Likely Happen
Just a few days after the original Politico piece about enhanced cooperation, Bloomberg gave an update. The news source reported that the EU nations were on board with this method.
Why It Matters
The EU is working to set its 15% minimum tax rate, but this would likely affect more than just the EU. As 136 countries endorsed the idea at the OECD, this clearly included more than just the EU.
The hope is that the EU would lead the way. Once the EU follows through with the minimum tax, experts hope a global initiative will follow. Some other countries expected to join the trend include the U.K., the U.S., China, and India, all of which having backed the accord at the OECD.
Conclusion and What to Expect
Most countries in the European Union are strongly in favor of the 15% global minimum tax rate. They argue that this would ensure that the largest companies in the world pay their fair share of taxes. Given their determination, it’s likely that the EU will find a way to overcome Hungary’s veto. Therefore, enhanced cooperation seems like a strong possibility.
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