Slow Going for Global Minimum Tax

"U.S. and European officials are trying to inject fresh momentum into a global drive for a minimum corporate tax rate, but they are finding it difficult to navigate around a series of roadblocks, namely Democrats' narrow margins in Congress and consequential objections from Hungary.

Nearly 140 countries agreed last year to impose a 15% minimum tax on large companies, paving the way for the most significant overhaul of international tax rules in a century. Getting to that point took years of negotiations that often seemed close to collapse.

Now, eight months later, there has been little progress on changing national laws to implement the tax.

Hungary's decision to withdraw its support for the minimum tax means that the European Union can't press ahead with its plans for 2024 implementation, even though the bloc's other 26 members support the move.

Hungary's stance has been a source of fresh frustration for the big European nations that are the most enthusiastic supporters of the new tax, including France, which holds the EU's rotating presidency during the first half of the year and had hoped to use that post to advance the policy.

French President Emmanuel Macron spoke to Hungarian Prime Minister Viktor Orban about the issue at a meeting of EU leaders Friday and later told reporters that the bloc's other members would work to lift the veto, although he added that there were limits to what they were willing to do. "We can engage reasonably but not beyond," Mr. Macron said.

Informal discussions are set to continue, sometimes in unlikely venues. Hungarian Foreign Minister Peter Szijjarto on Friday said he would continue talks on the minimum tax at a meeting of North Atlantic Treaty Organization members in Madrid on Wednesday and Thursday.

Progress on implementing the minimum tax has been slow in the U.S. Democrats in Congress said they plan to press ahead with higher minimum taxes on U.S.-based companies, even while Hungary's objections prevent the EU from acting.

"Poland and Hungary are always looking for a piece of leverage to get something out of this," said Rep. Ron Kind (D., Wis.). "I think eventually they're going to come around. I mean, I'm not sure what their ask is, but I'm sure there's one being made right now."

Sen. Rob Portman (R., Ohio) said EU delays should make the U.S. rethink its approach. The U.S. has a minimum tax of 10.5% on the foreign income of U.S.-based companies, and the Democratic plan would raise that rate and tighten its rules before other countries act. "We are shooting ourselves in the foot by saying we are going to assess a new tax on our companies when other countries don't do it," Mr. Portman said.

The minimum tax is expected to advance only as part of President Biden's broader fiscal agenda, which can get through Congress without requiring any Republican votes. Even among Democrats, that effort has been stalled for several reasons, including complaints from Sen. Joe Manchin (D., W.Va.) about its size and details of the proposed spending programs.

Mr. Manchin and other moderate Democrats have expressed little direct concern about the international tax changes, and administration officials have pressed for the U.S. aspect of the global deal to be included as revenue-raising pieces of any final agreement among Democrats. That deal could come together this summer, but Democrats' slim majorities in the House and Senate make it challenging.

There might be advantages to being the first country to implement the tax. According to the terms of the 2021 agreement, a country that enacts the measure can collect taxes on profits made by companies based in other jurisdictions to ensure the goal of 15% is reached if those other jurisdictions don't collect the tax themselves.

Treasury Secretary Janet Yellen, at a June 20 event, said she would be delighted to see the U.S. move first and added that the EU is "very close to achieving this."

Eventually countries "that say we don't want to go along with this, they'll see their firms are being taxed anyhow and we're not getting the benefits of that taxation," Ms. Yellen said. "Now that was never supposed to apply to the United States, and I really hope we go first and second," she added, referring to the U.S. and the EU." [1]

1. U.S. News: Slow Going for Global Minimum Tax
Hannon, Paul; Rubin, Richard. 
Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 27 June 2022: A.2.