The agreement in the Council of the European Union on Monday 12 December on the suspension of €6.3 billion of cohesion funds for Hungary due to persistent concerns about the protection of the EU’s financial interests demonstrates that the ‘Rule of Law’ regulation is an effective way of pressuring a Member State to carry out reforms in line with fundamental European values (see EUROPE 13082/2).
The EU Council decision, which still has to be formally adopted via a written procedure expiring on Wednesday 14 December, confirms the European Commission’s updated assessment recommending the suspension of EU funds. However, taking into account the extent of the remedial measures satisfactorily implemented by Hungary and its level of cooperation, Member States reduced the pecuniary penalty from €7.5 billion to €6.3 billion.
“The EU Council’s Legal Service and the Commission acknowledged that this was within the EU Council’s margin of political discretion, without questioning the Commission’s risk assessment. The latter will not object”, a diplomatic source said Monday evening after the agreement.
The measures set out in the EU Council Decision are temporary and can be lifted, on a proposal from the Commission, without loss of Union funding for Hungary, if the problems identified are resolved within two years.
In the European Parliament, reactions to the EU Council agreement were positive. “Today is a very good day for European taxpayers, because the EU Council has finally agreed on concrete measures for Hungary”, welcomed the German EPP group Chairman Manfred Weber. The European Parliament rapporteur on the ‘Rule of Law’ Regulation, Petri Sarvamaa (EPP, Finland), called it a “small but important victory for the Rule of law in the Union”. Philippe Lamberts (Greens/EFA, Belgian praised the Commission’s “firmness” but said he would have liked to have seen more funds suspended.
The agreement on the protection of the EU's financial interests in Hungary unblocked three other politically related files: - the Hungarian recovery plan; - EU macrofinancial assistance of €18 billion to Ukraine for 2023; - the minimum taxation of multinationals (pillar II OECD agreement).
Hungarian Recovery Plan. Except for the abstention of the Netherlands, Member States adopted the €5.8 billion grant-only Hungarian recovery plan, the last national plan to be adopted under the Next Generation EU recovery plan (see EUROPE 13074/1).
In particular, the Hungarian plan has 27 ‘super milestones’ which include the 17 ‘anti-corruption’ measures identified in the Rule of Law Regulation and four reforms to improve the independence of the judiciary.
Until these milestones are fully met, the first tranche of €800 million in aid will not be paid to Budapest.
See the EU Council decision adopting the Hungarian plan: https://aeur.eu/f/4n5
And its annex: https://aeur.eu/f/4n6
Macrofinancial assistance to Ukraine. It was in fact the lifting of the Hungarian veto on an EU27 solution to fund the macrofinancial assistance to Ukraine that triggered the overall agreement.
While they were advocating for bilateral aid to Kyiv, the Hungarian authorities finally accepted that the headroom of the EU budget will serve as a guarantee for this aid of €18 billion for the whole 2023 year (see EUROPE 13070/16, 13059/8).
The European Parliament will reconfirm its support for this financial operation. The first EU payment to Ukraine is expected in early January.
Minimum taxation of multinationals. The EU Council finally reached an agreement on the Directive on minimum taxation of multinationals, thus implementing pillar II of the OECD agreement. After the Polish blockage, it was Hungary that had been preventing unanimity from being reached since June (see EUROPE 12974/8).
According to our sources, however, Poland is keeping a review reservation on Pillar II until the end of the procedure on Wednesday. It wants to examine how the G20 countries have incorporated Pillar II of the OECD agreement into domestic law.
“Our message is clear: the largest groups of corporations, multinational or domestic, will need to pay a corporate tax that cannot be lower than 15%, globally”, said the Czech Minister of Finance, Zbyněk Stanjura, in a statement.
This tax concerns multinationals and large companies with a combined financial income of more than 750 million euros per year.
“The European Commission has never given up on this agreement and I am proud to see it become a reality. The common European interest has prevailed and I want to pay tribute to the French and Czech Presidencies for all their efforts that have led us to this point”, said the European Commissioner for Taxation, Paolo Gentiloni.
The text provides for transposition into Member States’ national law by the end of 2023, as foreseen in the international agreement.
As for Pillar I on digital taxation, the draft multilateral convention is expected to be ready by mid-2023 (see EUROPE 13072/20).
See the text of the directive transposing the pillar II of the OECD agreement: https://aeur.eu/f/4n8 (Original version in French by Lionel Changeur, Mathieu Bion and Anne Damiani)