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We have an important decision on global minimum taxes – Hungary will be under more pressure

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Already this week announcedA supportive decision on the global minimum corporate tax is likely to be reached at the G20 summit on Friday and Saturday, and that was done on Saturday, Olaf Scholz told Reuters in a statement above. The heads of state and government of the G20 will also meet in Rome in October to sanctify the agreement, which is spelled out in its final details, But as the German CFO already pointed out today: The seed of the deal has now been born. At the moment, the exact details of this are not yet known, but the trends are really important, and they are also important for Hungary.

European Commissioner for Economic Affairs Paolo Gentiloni said in the news agency summary: It has not been determined what percentage of the profits of multiple companies will be taxed at the national level and whether there are other sectors outside financial and mining companies that will be excluded. of the deal.

At the G7 summit a month ago, trends were anyway It has already been revealedThen on the expanded OECD platform last week, 130 out of 139 countries nodded in the framework. However, Hungary Lost along with three other EU member states (Ireland and Estonia also opposed the framework and Cyprus did not participate in the OECD negotiations). In addition, Kenya, Nigeria, Sri Lanka, Barbados, Saint Vincent and Grenada are the other five missing countries.

Then, on Saturday, the G-20 summit also supported it They put an end to decades of corporate tax tax competitionCountries lower tax rates for each other or attract multiple large corporations with other advantages. Thus, the latter does not tax most of its profits at the places of production, but at a discount in various tax deals or at very low rates in tax havens.

Large corporations (the shareholders) do well, while the treasury of their home country is bad, but often the treasury of countries where owners of large corporations donate big profits because they would have collected lower taxes for the same profit margin with lower discounts and higher rates.

As a global study based on last year العام we wrote: In fact, even with its attractive corporate tax system, Hungary is the loser from the harmful global tax competitionBecause in tax year 2017, the research could identify outflows of $3.7 billion in profits from the state. Had the companies kept this at home, the NAV would have collected an additional $700 million in tax revenue (200 billion HUF at today’s exchange rate).

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The Global Corporate Tax Minimum Agreement seeks to provide some kind of fair response to these challenges, because Now, any country needs additional revenue to deal with the effects of the coronavirus crisis and to combat the climate crisis. So the major countries are now backing this deal because of the additional revenue, but at the same time they are creating a framework so that countries with an attractive tax system or tax haven status can feel encouraged to go up.

The incentive system also considers those who want to drop out

Already at the top of the G7 BoyAnd then, following the OECD platform, it is now also supported at the G20 Summit

The essence of the deal is that if the tax paid in the country of a subsidiary of a global multinational does not reach the level agreed in the global agreement, the difference can be collected by the country of the parent company.

If the country of the parent company does not use the option as well (because, for example, that country was excluded from the tax transaction), then the other subsidiary countries will be able to collect the tax. Thus, if a state introduces tax rates or provides a tax advantage that results in a lower tax burden than expected, it They mainly support the budgets of other countries, which all countries will logically try to avoid.

The agreement consists of two pillars, each with real financial incentives They can also direct the rest of Hungary to participate in the agreement. This is made possible through the distribution and amended system of tax rights.

The last known position of the Hungarian government

The reasons for the Hungarian government were announced today by Norbert Iser, Secretary of State for Taxation at the Ministry of Finance sum up, according to a large part of the 130 countries but forced its head in the last minute deal, which has not yet been clarified in all its details, but on an important point. Because of the latter According to Iser, EU companies will be in a dangerous competitive position on the international stage Because of the stricter rules on parent companies and state aid, he also criticized the entire agreement for focusing solely on corporate tax, while imposing a number of other burdens on corporations.

As the Minister of Foreign Affairs mentioned it The Hungarian government supports the first pillar of the OECD proposal, which addresses the redistribution of tax rights الحقوق Originally for digital businesses, now for a wider audience.

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However, the second pillar of an effective corporate tax of at least 15% is supported by the Hungarian government only to the extent that it relates only to curbing artificial tax evasion structures, Not to exacerbate profits from real economic activity, because taxation is the sovereign right of every country and the Hungarian government wants to insist on tax competition in this sense.

The effect of dragging one of its corners

One pillar is, simply put, to have an effective corporate income tax rate of at least 15% i.e. income tax actually payable in all participating countries (the scope of residual/distributable benefits is not yet clear). Obviously, this can generate additional tax revenue, for example, Hungary, which operates at a nominal (and less effective) corporate tax rate of 9%, or Ireland, which operates at a rate of 12.5%.

The big question is whether they and the other missing member states will take the riskThat the effective tax rate (and the reduced discount system) has been raised to the minimum They are no longer able to effectively attract new foreign investors (FDI) to the country. In addition, there is a risk due to the standardized framework Some companies distance themselves from them, move their activities, or move profits elsewhere. This would lead to

Interacting with the possibility of collecting excess tax revenue, it really would have been possible to collect less while it would always have a negative impact on the business. It is these two factors that are most feared by countries considering exclusion.

This risk can be mitigated through the above mechanism, so that funds can be distributed among entrants through the adjustment of tax rights, which is encouraging and attractive.

The effect of pulling the other stent

This distribution of the right to levy occurs in the other corner of the agreement, encouraging adherence. The point is that large multinational corporations with a profit margin of at least 10% worldwide must tax at least 20% of the profit range above 10% where their income is generated. (distributed to tax offices in different countries in proportion to sales revenue). This means that even smaller countries will get tax revenue even if the multiple company in question does not have a large activity, location or branch there, as it will be a sufficient condition to get sales revenue in that country (therefore the global company also contributes to produce profits).

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By the way, Yellen already stated in June that Amazon, for example, will definitely fall into this second column, for example Despite the fact that the company has no significant activities in Hungary other than the delivery of goodsIf you make more than 10% profit worldwide, you will have to distribute 20% of that share worldwide among the countries from which you earned revenue (and profits). Thus, Hungary will also fall into this “hat”. (Amazon’s global profit margin was close to 10% in its last business year with sales of more than $100 billion.)

So there would be no place for such multis to “hide” from rising taxes under a unified framework, and the same situation applies to Facebook, for example.

Yellen and Schulze say dropouts will be pulled

And US Treasury Secretary Janet Yellen had already indicated this at the G7 meeting in June

With these solutions, they wanted to consider that they certainly wanted the extra tax income that would encourage them to get started.

And now on Saturday he said something very similar, Reuters reported, saying he believed some tax concerns could be addressed for those planning to withdraw, he would try, but the agreement would work even if some were left out.

We will try to do this (Dealing with Concerns – Editor), but I must stress that it is not necessary for all Member States to join the Agreement.

“This agreement also contains enforcement mechanisms that can be used in a way that neglected ones, such as tax havens, cannot undermine the viability of this global agreement,” he added.

German Finance Minister Olaf Schulz told a very similar news agency on Wednesday:

I am convinced that, in the end, we will also have the support of the European (non-participating) countries, so that everyone can support these bases together. In my opinion, these rules will work anyway.

Thus, the above clearly indicates that increased pressure awaits Hungary (also) by October, that the Hungarian government will listen to the concerns/counter-arguments of the great powers, they are confident they can address them and that they are confident that the financial benefits of the budget will convince the Hungarian government as well by joining.

Other important developments at the G20 Summit are:

Cover image source: Joshua Roberts/Bloomberg via Getty Images