WSJ: The Worst Time for a Global Minimum Tax
Hungary declines to discourage investors during an economic crisis.
The European Union is entering a time of economic crisis. The war and sanctions are causing unprecedented challenges: rising interest rates and inflation, spiking food and energy prices, and supply-chain disruptions. Governments must make their countries’ economic interests the priority and address the cost-of-living crisis.
Adopting the European Commission’s minimum-tax directive now would be a profound mistake. The directive is based on rules published in 2021 by a group of more than 100 countries collaborating to address tax challenges in the digital economy. It has two pillars: The first aims to put an end to big tech firms’ tax avoidance by making them pay their fair share of tax where their activities are performed and where their profit is created. The second aims to introduce a minimum 15% tax on corporate profit world-wide to put a floor on tax competition. The global tax deal was planned to come into force in 2023, but in May OECD Secretary-General Mathias Cormann announced that it may take longer to implement.
The EU directive, proposed by the European Commission in December 2021, aims to introduce a 15% minimum tax rate, effective Jan. 1, 2023, on large multinational corporations with annual revenue of at least €750 million. Instead of tackling profit-shifting and tax-avoidance strategies, the current proposal would increase the tax burden on European manufacturers, which drive economic growth. The directive would need to be unanimously agreed by 27 EU member states to take effect. Hungary can’t support a proposal that would hurt the weakened European economy and further increase inflation.
Adopting the directive would hit Central European economies the hardest by damaging their favorable tax systems, a key competitive advantage over their Western European counterparts. The Visegrád Four (Poland, Hungary, Slovakia and the Czech Republic) have grown steadily in the last decade. Hungary especially has used its fiscal independence to create one of the most investment-friendly environments in Europe—with an accessible location, a qualified workforce, an investor-friendly legal environment, a range of government incentives, a flat corporate income tax of 9% and an effective rate of 7.5%. In 2021 Hungary saw a record foreign investment of €5.9 billion.
Hungary’s ability to set its own fiscal policies in this crisis is indispensable. To protect our competitiveness and sovereignty, the Hungarian National Assembly passed a resolution prohibiting the government from agreeing to implement a global minimum tax.
In 2021 Hungary stopped objecting to the global minimum tax deal when it expected a quick pandemic recovery with healthy growth rates. Under current circumstances, however, restricting competition among member states and adding an extra tax burden on the companies driving our economic growth is just asking for trouble.
Mr. Orbán is a member of the Hungarian Parliament and political director for Prime Minister Viktor Orbán (to whom he is unrelated).
