Hungary drops veto to pave way for landmark EU bloc 15% corporation tax

The European Union made a landmark breakthrough late evening on 12 December to implement a 15% minimum taxation rate for large companies across the bloc after Hungary dropped its veto. 

The ambassadors of the 27 member states agreed to implement the minimum taxation part of the international reforms agreed by the OECD, which is known as Pillar 2, by the end of 2023.

This involves setting a minimum rate of 15 per cent tax for multinational and domestic groups or companies with a combined annual turnover of at least €750 million.

"I am very pleased to announce that we agreed to adopt the directive on the Pillar 2 proposal today," read a statement from Czech finance minister Zbyněk Stanjura, who chaired the negotiations.

"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 per cent, globally."

In early reaction, Mourant chair Geoff Cook said on LinkedIn: "EU Ambassadors meeting has agreed a deal with Hungary removing the objection to Pillar II of the Global Business Tax Directive. A 15% Minimum Corporation Tax for the largest corporations will be introduced throughout Europe. 

"Given the EU tends to exert political influence through extra-territorial application of its standards there are likely to be far reaching implications for third countries."

EU member states reached agreement to implement at EU level the minimum taxation component, known as Pillar 2, of the OECD's reform of international taxation. The ambassadors of EU member states decided to advise the Council to adopt the Pillar 2 directive, and a written procedure for the formal adoption will be launched. The Committee of Permanent Representatives reached the required unanimous support today.

Effective implementation of the directive will limit the race to the bottom in corporate tax rates. The profit of the large multinational and domestic groups or companies with a combined annual turnover of at least €750 million will be taxed at a minimum rate of 15%. The new rules will reduce the risk of tax base erosion and profit shifting and ensure that the largest multinational groups pay the agreed global minimum rate of corporate tax.

The directive has to be transposed into member states' national law by the end of 2023. This will still result in the EU being a front-runner in applying the G20/OECD global agreement on Pillar 2.

On 8 October 2021, almost 140 countries in the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) reached a landmark agreement on international tax reform, as well as on a detailed implementation plan.