Hungary has decided to publicly explain its reasons for not signing the joint declaration on international tax reform (see EUROPE 12753/1). In an op-ed published on Monday 26 July in the online newspaper, the EU Observer, the State Secretary for Tax Affairs at the Hungarian Ministry of Finance, Norbert Izer, said his country will not sign the agreement until all the details have been clarified.
According to Mr Izer, the agreement on a minimum tax rate of at least 15% on multinationals’ profits lacks guarantees on several critical issues and there are still many uncertainties surrounding the basis of the new minimum tax.
In particular, Hungary believes that legislation should only cover highly mobile profits that are disproportionate to the underlying level of real economic activity and fully respect the sovereignty of countries to provide tax incentives.
“We believe that the fight against harmful tax competition should not become a fight against the competitiveness of tax systems”, the State Secretary said.
The agreement already allows multinationals to reduce profits subject to minimum tax by an amount equal to 7.5% for the first five years, and then by 5%, of the value of their assets and payroll in each country (see EUROPE 12768/15).
But this rate is insufficient in the eyes of the Hungarian government, which wants normal profits attributed to substantial economic activity to be more significantly excluded from the minimum tax base.
It is also crucial for Hungary that the proposal ensures a level playing field. The minimum taxation rules should thus cover the parent company and its foreign subsidiaries equally, according to Mr Izer.
The country is also concerned that the minimum tax base will be established using the accounting standards of the parent jurisdictions, which differ from those of the subsidiaries’ jurisdictions. “Many of the differences affect only the timing of the tax liability, which may lead to double taxation if not treated adequately”, says Norbert Izer.
The legislation should also include, according to him, ‘grandfathering’ rules for tax credits acquired before the agreement came into force.
The G20/OECD Inclusive Framework on Base Erosion and Profit Shifting (BEPS) plans to finalise the remaining elements of the reform framework in October. According to the Secretary of State, “an acceptable compromise should be possible by then”. In any case, Hungary promises to participate constructively in the work, but warns that it will not formally sign the agreement until all the details have been clarified.
132 countries have now signed the declaration on international tax reform. Hungary, Ireland and Estonia are the only EU Member States that have not yet taken the step.
See the op-ed: https://bit.ly/3rJUvIo (Original version in French by Marion Fontana)