Hungary has agreed to join the agreement on a global corporate minimum tax as the conditions it proposed, which included a 10-year transitional period, have been met, as Finance Minister Mihaly Varga reported.
“We have managed to reach a breakthrough on the global minimum tax deal ,so Hungary could join the deal with a good heart” Varga said, adding that Hungary’s 9% corporate tax rate will not change, as there will be a targeted solution to collect the global tax.
The global tax will be collected using “a targeted solution” that takes into consideration genuine economic activity. It means that corporate assets and payroll costs will be deductible using a special method of calculation, so those companies that are conducting activities with genuine, not fictitious, assets and payroll costs, can avail of a preference.
Initially 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 Hungary and Estonia.
In fact, 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.
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.
global minimum tax
The Organisation for Economic Cooperation and Development (OECD) announced that 136 countries and jurisdictions—of the 140 members of the OECD/G20 Inclusive Framework on base erosion and profit shifting—have agreed that certain multinational enterprises (MNEs) will be subject to a minimum 15% tax rate, effective from 2023.
According to the OECD release, the agreement will reallocate certain taxing rights over MNEs from their home countries to the markets where they have business activities and earn profits—regardless whether the MNEs have a physical presence there.
The two-pillar solution was delivered to the G20 Finance Ministers meeting in Washington D.C. on 13 October 2021, and then to the G20 Leaders Summit in Rome which took place at the end of October 2021.
Under Pillar One, taxing rights on more than U.S. $125 billion of profit are expected to be reallocated to market jurisdictions each year. Specifically, MNEs with global sales above €20 billion and profitability above 10% will be covered by the new rules, with 25% of profit above the 10% threshold to be reallocated to market jurisdictions.
Pillar Two introduces a global minimum corporate tax rate set at 15%. The new minimum tax rate will apply to companies with revenue above €750 million and is estimated to generate around U.S. $150 billion in additional global tax revenues annually. Further benefits will also arise from the stabilisation of the international tax system and the increased tax certainty for taxpayers and tax administrations. The OECD will develop model rules for bringing Pillar Two into domestic legislation during 2022, to be effective in 2023.
Rome g20 resolution about global minimum tax
Leaders of the world’s biggest economies endorsed the global minimum tax on corporations as part of an agreement on new international tax rules, a step toward building more fairness amid skyrocketing revenues of some multinational businesses.
G-20 finance ministers in July had already agreed on a 15% minimum tax. Its formal endorsement at the summit in Rome of the world’s economic powerhouses was widely expected. Yellen predicted in a statement that the deal on new international tax rules, with a minimum global tax, “will end the damaging race to the bottom on corporate taxation.”
Daniele Perinelli
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