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British Politician “Speaks Hungarian” on Biden’s Global Minimum Tax

Hungary Today 2023.06.19.

When the Joe Biden administration-conceived plans for a global minimum corporation tax was announced in 2021, the Hungarian government had categorically rejected the idea calling it a coup de grace for the competitiveness of European Economy. Although Foreign Secretary Péter Szijjártó warned that the 15% minimum tax could lead to job losses in Hungary, a traditionally low corporate tax rate country (9%), his warnings were met by silence in European economic circles. Now it seams, despite the conspicuous silence, not everyone was content with the U.S.-championed plans.

In an article for the Daily Telegraph, former British Home Secretary Priti Patel described the proposal as

the OECD’s radical plan for permanent worldwide socialism”,

and pledged to give British ministers an emergency brake on new global tax rules.

She wrote that “when more than 140 countries signed-up to the OECD’s (Organization for Economic Co-operation and Development) 2021 agreement to impose a worldwide minimum corporation tax rate, the move was presented as a victory for “progressives”. On the whole the proposal was hailed as victory over multinational corporations that tried to pressure national government to lower their corporate tax-rates in return for investment and jobs, as well as a tool for taxing mostly U.S. technological giants that have long been accused of dodging taxes.

However, she had highlighted a fundamental flaw in the OECD’s proposal. Although national governments were banned from taxing larger international firms at less than 15 percent, “no such restraint was proposed when it came to subsidies”. Patel referred to this approach as “tax-cuts bad, taxpayer-funded subsidies good”.

Photo: Facebook Priti Patel

The British politician pointed out that the approach will inevitably mean competitive disadvantage for smaller countries, because they will never be able to compete with China and the U.S. in a “subsidy race”. Patel warned that

the OECD’s radical plan threatens to tilt the world Left-wards, forever”.

The OECD and its defenders seem to fear tax competition, Patel wrote in her article. She also pointed at a fundamental flaw in the system, namely, that there is no institution tasked with policing the new rules, and it is unclear what sanctions are to be introduced for those who reject them. She also maintained that compelling countries such as China to follow the new rules will be nigh impossible.

Patel’s questions have partly been already answered when the Biden administration had in July 2022 unilaterally terminated the 1979 International Treaty for the Avoidance of Double Taxation with Hungary, widely thought to be a direct retaliation for the Hungarian government’s resistance against the new global corporate tax rules. This could imply that the U.S. government had appointed itself as the guardian of the new treaty and will use its economic and political muscle to enforce it globally, including on its European allies.

As Patel said, the countries grappling with the new global corporate tax might find themselves between a rock and a hard place, as U.S. Republicans are increasingly unhappy with the plans. As she pointed out, the Republican chairman of the House Ways and Means Committee, Jason Smith, threatened retaliation against any country imposing higher taxes on US companies based on the new OECD framework.

Although Hungary had eventually lifted its veto from the new corporate tax deal, the U.S. has not reversed its punitive decision to abolish the treaty on double taxation. Nevertheless, Hungary has managed to get an exemption as a result of which it will keep its low, 9% corporate tax rate for companies producing less than EUR 750 million profit annually, and the remaining few larger entities will be able to include the local business tax into their final tax bill at the end of the year, significantly blunting the effects of the new rules.

Biden Administration Continues to Exert Financial Pressure on Hungary
Biden Administration Continues to Exert Financial Pressure on Hungary

Double taxation will mean that anyone who owns U.S shares and makes a profit there will have to pay much more next year.Continue reading

Featured Photo: Facebook Priti Patel

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