France ready to bypass Hungary for global corporate tax deal

France wants the EU to consider bypassing Hungary in its push to secure a minimum corporate tax rate for big companies after Budapest blocked the agreement, finance minister Bruno Le Maire said on Thursday.

Mr Le Maire told reporters in Paris that France would work on “alternative solutions” with Paolo Gentiloni, EU economics commissioner, to approve the deal negotiated last year by 137 countries at the OECD so that other EU members could implement the minimum tax without Hungary. The Republic signed up to the OECD deal after an initial delay.

His words underscore frustration in Paris at the failure to deliver legislation implementing the OECD’s so-called Pillar Two, which dictates a minimum effective 15 per cent corporate tax rate. Ministers were on the cusp of a deal this month after Poland dropped its opposition, but Hungary suddenly reversed its position and blocked the measure at the last minute.

“Europe can no longer be held hostage by the ill will of some of its members,” Mr Le Maire said, adding that France had fought for the international tax deal for the past five years and would not let it drop. “This global minimum tax will be implemented in the coming months with or without the agreement of Hungary.”

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Tax measures at EU level are subject to unanimous decision-making but nine or more member states can move ahead with initiatives via “enhanced co-operation” if all capitals cannot be brought on board. The EU has attempted in the past to use enhanced co-operation to implement a financial transactions tax, but the effort foundered.

The idea of deploying enhanced co-operation to implement the corporate tax rate is viewed in Brussels as a last resort and the focus remains on bringing Hungary around. “That’s exactly what we’re focused on right now: reaching a unanimous agreement,” said commission spokesman Daniel Ferrie.

Some officials still expect Hungary to come around to the minimum rate because countries that implement the measure can impose top-up charges on companies that are benefiting from a lower rate.

Mr Le Maire said on Thursday that the EU should embrace majority voting for tax matters in the future.

The OECD tax package also includes a first pillar that obliges big multinationals to declare profits and pay more tax in the countries where they do business, rather than diverting income to low-tax jurisdictions. The proposals are also facing headwinds in the US.

Under Donald Trump, the US was unenthusiastic and resisted Mr Le Maire’s attempts to promote it, while the Biden administration is struggling to persuade Congress to approve the tax provisions for implementing both pillars of the agreement.

France made approving the tax deal one of the key aims of its six-month presidency of the EU, which ends on Thursday.

Hungary’s blocking move is not seen in Paris as having anything to do with the actual tax provisions but as a bargaining chip for other disputes between Brussels and Budapest. Mr Le Maire said Hungary’s objections had “nothing to do with the minimum corporate tax”. — Copyright The Financial Times Limited 2022