Germany has announced plans to press ahead with a key element of the OECD’s global tax deal, in a move that piles pressure on Hungary to drop its resistance to EU proposals that set a 15 per cent floor on the tax that big businesses pay on profits.
Attempts to pass an EU directive to introduce part of the OECD deal, signed in 2021 and aimed at stamping out use of tax havens by multinationals, have been blocked twice — first by Warsaw, and then by Budapest.
In a bid to break the impasse, Berlin said on Sunday that it would start preparing domestic rules to enforce the tax floor. The move, which comes ahead of an informal meeting of the region’s finance ministers later this week, is seen by tax insiders as an attempt to force Hungary to agree to the EU rules or risk losing out on potential revenue.
Sven Giegold, a secretary in the federal ministry for economic affairs and climate action in Germany’s coalition government, said on Twitter “we must no longer stand idly by and see how a veto by [Hungary’s prime minister Viktor] Orbán costs the German state billions.”
“If we do not make progress with the implementation of the global minimum taxation of large companies in Europe, the hard-won deal risks slipping. We cannot permit that. That is why we are now acting on our own to ultimately enforce European law.”
To eliminate tax avoidance and end a race to the bottom in corporate taxation, 136 countries agreed to implement the global tax floor on companies with revenues of more than €750mn at an OECD meeting last October.
Progress at the EU level is viewed as key to making the global minimum tax work owing to the number of large multinationals headquartered in the region. The position of the major European economies became even more important last month after the US abandoned one of the tenets of the deal — to clamp down on tax havens — when it introduced a minimum tax of 15 per cent that would not apply on a country-by-country basis.
“This is a big moment for the global minimum tax,” said Pascal Saint-Amans, director of tax administration at the OECD. “I would not be surprised if the French follow soon or co-ordinate with the Germans.”
The European Commission produced a draft directive for the tax in December but progress is currently being blocked by Hungary. The next opportunity for a vote on the directive will be at the Ecofin meeting of EU economic and finance ministers on October 4.
“The fact that Germany is forging ahead with minimum taxation could be the breakthrough at European level,” said Rasmus Andresen, a member of the European Parliament’s committee on economic and monetary affairs.
“Germany’s decision . . . puts pressure on Hungary blocking the EU agreement,” Andresen said. “We can’t wait for the laggards or be thwarted by national vetoes . . . others could and should follow suit.”
Changes to tax rules usually require unanimity among EU member states. However, Andresen has called for an implementation of the global minimum tax via a process called “enhanced co-operation”, meaning that other member states could press 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 draft legislation for the global minimum tax, known as ‘Pillar Two’ of the global tax deal.
However, the government of new prime minister Liz Truss has yet to decide whether to block its implementation.
“That would complicate things for Germany but not decisively,” said Grant Wardell-Johnson, global tax policy leader at KPMG. “I don’t think Germany would change its position because of the UK”.
Additional reporting by Sam Fleming
Source: Economy - ft.com
