Poland and Hungary will not support the plan to introduce a global minimum corporate tax level agreed by G7 finance ministers this weekend unless there is a carve-out to protect substantive business activities in their countries, according to their finance ministries.
The stand taken by the two central European countries suggests resistance to a deal within the EU could stretch well beyond Ireland and other destinations favoured by multinationals seeking to minimise their tax burdens.
“We shouldn’t have the G7 dictating what tax rate we have in our country,” Tadeusz Koscinski, Poland’s finance minister, told the Financial Times. Setting a lower tax rate was an important way for countries to catch up with more advanced economies by attracting innovation from abroad, he said.
But Koscinski also insisted that Poland, which has a headline corporate rate of 19 per cent, did not wish to lure companies to Poland for the purposes of minimising their tax burden.
He said any global agreement would have to distinguish between profit-sharing and “substantial business activities”.
“We don’t support the idea of a minimum tax on the profits companies make in Poland on business in Poland,” he said.
Any global deal would have to have a “substantial carve-out on business done domestically”, he added. “Whether that will happen, the devil is in the detail. Some G7 countries might fight against that.”
Hungary, which has a headline corporate tax of only 9 per cent, the lowest in the EU, has taken a similar line.
In a statement, its finance ministry said countries “should be given the right to make their sovereign decisions” on the taxation of “substantial economic activities performed on their territory . . . taking into account the level of economic development and other relevant factors”.
“Therefore, a tax increase is not supported by the government in the case of companies with substantial economic activity,” the ministry said.
The original 2020 OECD blueprint for a global tax deal proposed a carve-out for substantial business activities such as plant or buildings — in effect focusing the minimum tax on profit-sharing by subsidiaries of multinational companies.
However, the US proposals that paved the way for the outline deal among G7 finance ministers on Saturday did not contain an exemption, substantially broadening its scope.
Pascal Saint-Amans, director of the OECD’s Centre for Tax Policy and Administration, told an event last month that a global deal was “not realistic” without some form of carve-out for tangible assets.
Any exemption and the definition of substantial business activities is likely to be one of the sticking points as the talks shift from the G7 to the wider group of countries marshalled by the OECD in the coming weeks.
The proposed minimum rate does not require unanimous approval to come into effect, but the other “pillar” of the reform — the right to tax a share of profits from sales in a particular country — does. That gives individual capitals leverage in the negotiations.
Separately, Brussels has announced its intention to enact the eventual OECD tax agreement through EU legislation, to ensure uniformity across the bloc. This will also require unanimity among EU member states.
Cyprus is another EU state favoured by global companies. Cypriot finance minister Constantinos Petrides said in a statement the country would show “a constructive spirit if an equal level playing field is ensured for all countries and safeguard its interests while the position of the smaller member states should be taken seriously”.
The country has a 12.5 per cent headline rate but the Cypriot government says it is in effect topped up by an additional dividend tax on corporate profits.
Additional reporting by Eleni Varvitsioti in Athens