Budapest, Hungary – After opposing the deal for months, the Hungarian government signed up to a global initiative to impose a minimum corporate tax rate on large companies.
“We have managed to reach a breakthrough on the global minimum tax deal […] so Hungary could join the deal with a good heart,” Finance Minister Mihaly Varga told reporters late last week.
The previous day, a total of 136 nations representing roughly 90% of the world’s GDP agreed to move forward with plans to impose a minimum global corporate tax rate of 15% on the world’s largest companies.
Changes to the text of the resolution, including assurances that the 15% rate will not be increased later on and that smaller companies will not be affected, won the support of several reluctant nations.
Hungary joins OECD plans for global minimum corporate tax
The initiative, which has been under discussion for years and was put back on the agenda by the new US administration at the beginning of the year, faced the opposition of several European countries, primarily Ireland – where many digital giants have their headquarters – as well as Estonia and Hungary.
In July, Budapest refrained from joining a joint OECD statement on the minimum corporate tax rate, fearing the move could bring a competitive disadvantage to the EU and Hungary, whose current 9% corporate tax rate has been a key factor in the Orban government’s push to attract large multinational companies.
In June, Prime Minister Viktor Orban described the move as “absurd”.
According to Minister Varga, Hungary was able to join the deal once the conditions it had proposed were accepted, included a lengthy 10-year transitional period. He also assured that the rate will remain at 9% in Hungary thanks to a “targeted solution” for tax collection.
“We have been right to stand up for our interests,” the Finance Minister said, describing the compromise as a “Hungarian success”.
The Organisation for Economic Cooperation and Development (OECD) has for years spearheaded efforts to reach a deal for a minimum corporate tax at the international level.
As OECD talks stalled, a number of European countries – including France and the Czech Republic – had moved to impose their own domestic digital tax – sparking a row with the US, which considered the move discriminatory against US firms.
“Race to the bottom”
The scheme, which the OECD says could bring in an extra 150 billion USD of tax annually, follows growing concerns that multinational companies, particularly tech giants such as Facebook, Google or Amazon, did not pay their fair share of taxes due to complex mechanisms to reroute and declare their profits in countries with lower taxation rates.
Under the agreement, such digital companies will have to pay at least some of their taxes in the countries where they do business, not only in those where they’re headquartered.
The new system will target companies with global sales of over 20 billion euros and profits margins superior to 10%.
Describing the deal as a “far-reaching agreement”, OECD Secretary-General Mathias Cormann said “we must now work swiftly and diligently to ensure the effective implementation of this major reform”.
Not everyone is impressed, however, with critics accusing signatories of doing too little, too late.
“The world is experiencing the largest increase in poverty in decades and a massive explosion in inequality, but this deal will do little or nothing to halt either,” reacted Oxfam tax policy head Susana Ruiz.
“Instead, it is already being seen by some wealthy nations as an excuse to cut domestic corporate tax rates, risking a new race to the bottom.”
The new global tax is scheduled to take effect in 2023.