Hungary has thrown cold water on the European Union’s plan to adopt a 15% corporate minimum tax, dealing a blow to EU leadership and the Biden administration.
The plan is part of a broader push for a global minimum tax, which has support from President Joe Biden and Treasury Secretary Janet Yellen. The proposal was agreed to last October by nearly 140 countries, although implementation requires each country, or bloc of countries in the case of the EU, to codify it individually.
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Hungary said it is not ready to move forward with the plan on Friday. Because the EU requires unanimity among all member countries to change EU tax policy, Hungary’s veto effectively blocks the measure from moving forward.
“The work is not ready,” said Hungarian Finance Minister Mihaly Varga, according to Reuters. “I think we have to continue the effort to find a solution.”
Poland had also expressed opposition to the 15% minimum tax, but Warsaw later changed its mind and said it would support the plan after the European Commission agreed on a conditional basis to pay out nearly $38 billion in pandemic recovery grants and loans.
Some officials have said Poland held back its vote in order to have the leverage to secure the funds. Yellen even flew to Warsaw in May to help push the Polish government to accept the deal.
Now Hungary might be taking a page out of Poland’s playbook, although it claims to be vetoing the proposal out of economic concerns.
“We always mean what we say: Amidst a raging war that is already straining and probing Europe’s economy and the effects of the sanction policies, introducing [the tax rate] would seriously harm EU’s competitiveness,” Zoltan Kovacs, Hungary’s secretary of state for international communication and relations, told Politico.
Stateside, Sen. Pat Toomey (R-PA) praised Hungary’s move to reject the plan. Toomey, who is the ranking member on the Banking Committee, has been an outspoken critic of a global minimum tax and argued that the notion is because the Biden administration wants to justify raising corporate taxes.
“As Hungary acknowledges, punishing workers and businesses with a global minimum tax would be a counterproductive step for economic growth around the globe,” Toomey said in a Friday statement. “It would be a profound mistake for the United States to adopt this global tax increase, as it makes our workers and businesses less competitive.”
Biden and Yellen have pushed for the plan as a way to reverse the “race to the bottom” in corporate taxation, which features different countries lowering their tax rates to attract international businesses to compete with other low-tax nations.
“The global minimum tax would also help the global economy thrive, by leveling the playing field for businesses and encouraging countries to compete on positive bases, such as educating and training our workforces and investing in research and development and infrastructure,” Yellen said last year.
Toomey said on Friday that the U.S. should not be working to end the “race to the bottom” but rather should be trying to lead that race.
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The Treasury Department said it is optimistic that Budapest will end up agreeing to the plan down the road despite Friday’s veto.
“This is a once-in-a-generation opportunity to end the race to the bottom on corporate taxes, level the playing field for U.S. businesses, and decrease incentives to shift profits and jobs offshore,” Treasury Department spokesman Michael Kikukawa said.
