During a 17 June 2022 vote at a meeting of EU finance ministers (ECOFIN), Hungary surprisingly exercised its veto on EU draft implementation of Pillar Two of the 2021 global tax agreement through the OECD, which would impose a 15% minimum worldwide tax on large multinational companies.
Hungary’s opposition has emerged after Poland, which vetoed the last attempt to reach EU unanimity over the minimum tax, indicated earlier in the week that it would support the proposal. According to Hungarian Minister of Finance, the main arguments are the current economic challenges and the concerns that introducing the global minimum tax at such an early stage would cause serious damage to the European economies. As we have already informed you, the implementation of EU directives requires approval by all 27 member states so the status is still on hold.
The EU’s failure so far calls into question the fate of the Pillar Two exercise and is uniquely problematic for the Biden administration as it seeks to have the US conform to Pillar Two in 2022 by raising the rate of its current minimum tax – known as the global intangible low-taxed income (GILTI) regime – to 15% and applying GILTI on a country-by-country basis, among other international tax changes. (Those provisions are included in the Build Back Better Act, the roughly USD 1.75 trillion tax-and-spending package that cleared the US House of Representatives in November 2021 but remains stalled in the US Senate.) Congressional Republicans – and some Democrats – have raised concerns about having the US implement changes intended to achieve Pillar Two conformity before other countries do so, arguing that this will put US companies at a competitive disadvantage. House and Senate taxwriters discussed issues around the OECD agreement with Treasury Secretary Janet Yellen during hearings on 7 and 8 June to examine the Biden administration’s budget blueprint for fiscal year 2023.
Republican lawmakers have argued in recent months that they believe the Biden administration should revisit aspects of the global deal, which they say will disadvantage US multinationals. Although more than 140 countries signed on to the agreement in October 2021, these lawmakers have said they believe there is still time to change course because the implementation timeline is already slipping. The 17 June EU vote will likely strengthen that position in Republicans’ eyes.
We will keep you informed about further development.
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