Poland and Hungary call on domestic companies to withdraw from G7 tax agreement

The Ministry of Finance of Poland and Hungary stated that unless there are exemptions to protect the substantive business activities of their countries, Poland and Hungary will not support the plan to introduce the lowest global corporate tax level agreed by the finance ministers of the Group of Seven this weekend.

The positions taken by these two Central European countries indicate that resistance to agreements reached within the EU may go far beyond the destinations favored by Ireland and other multinational companies in order to minimize their tax burden.

“We should not let the G7 determine our country’s tax rate,” Polish Finance Minister Tadeusz Koscinski told the Financial Times. He said that setting a lower tax rate is an important way for countries to catch up with more advanced economies by attracting foreign innovation.

But Koscinski also insisted that Poland, which has an overall corporate tax rate of 19%, does not want to attract companies to Poland in order to minimize the tax burden.

He said that any global agreement must distinguish between profit sharing and “substantial business activities.”

“We do not support the idea of ​​imposing a minimum tax on the profits of companies operating in Poland,” he said.

He added that any global transaction must “substantially divest domestic operations.” “Regardless of whether this will happen or not, the details determine success or failure. Some G7 countries may object to this.”

Hungary’s overall corporate tax is only 9%, the lowest in the EU, and a similar approach has been adopted.

The Ministry of Finance said in a statement that countries “should have the right to make sovereign decisions on the taxation of major economic activities carried out on their territories”. .. Taking into account the level of economic development and other relevant factors”.

“Therefore, for companies with a lot of economic activity, the government does not support tax increases,” the ministry said.

The original 2020 OECD Global Tax Agreement blueprint proposed the divestiture of major commercial activities such as factories or buildings—in fact, the minimum tax should be concentrated on the profit sharing of the subsidiaries of multinational companies.

However, the U.S. proposal is Outline transaction The exemption was not included among the G7 finance ministers on Saturday, greatly expanding its scope.

Pascal Saint-Armans, Director of the OECD Tax Policy and Management Center, Tell an event Last month, without some form of divestiture of tangible assets, global transactions would be “unrealistic.”

As negotiations shift from the G7 to a broader group of countries convened by the OECD in the coming weeks, any exemptions and definitions of substantive business activities may become one of the sticking points.

The proposed minimum tax rate does not require unanimous approval to take effect, but another “pillar” of the reform—the right to tax a portion of sales profits in a particular country—is required. This gives individual capital influence in the negotiation.

In addition, Brussels has announced its intention to promulgate the final OECD tax treaty through EU legislation to ensure the unity of the entire group. This also requires agreement among EU member states.

Cyprus is another EU country favored by global companies. The Cyprus Finance Minister Constantinos Petrids said in a statement that if it ensures a level playing field for all countries and safeguards their interests, while at the same time taking the position of smaller member states seriously, the country will show ” Constructive spirit”.

The country’s overall tax rate is 12.5%, but the Cyprus government stated that this is actually compensated by imposing additional dividend taxes on corporate profits.

Additional reporting by Eleni Varvitsioti in Athens

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