New 15 percent corporate tax from 2024 after EU deal

Corporate tax revenues could increase significantly from 2024 when a minimum rate of 15 percent for multinational companies comes into effect.

Hungary – the EU’s last reluctance – overturned its veto on the tax last night in quid pro quo with the bloc over Ukraine aid and the EU budget freeze.

That means the government has until December 2023 to enact the tax into national law.

“This agreement on minimum corporate taxation is a win for fairness, a win for diplomacy and a win for multilateralism,” said EU Economy Commissioner Paolo Gentiloni.

“The European Commission has never abandoned this agreement and I am proud that it is becoming a reality. The common European interest has prevailed.”

Budapest, which has long been at odds with Brussels over its judicial independence and anti-graft efforts, filed a last-minute objection to the tax deal in June, despite agreeing to it nearly a year earlier.

More recently, the country withheld €18 billion in promised aid to Ukraine.

The European Commission threatened Hungary with a €7.5 billion freeze of regional funds under a rule of law mechanism in the EU budget that had never been called before.

It also said it would defer all payments from an agreed €5.8 billion envelope for Hungary from its pandemic fund until the country passes a series of 27 reforms.

Finance ministers last week agreed to link negotiations on Ukraine, corporate tax and Hungary’s EU budget to expose Budapest’s bluff.

Last night, EU ambassadors agreed to increase the amount of frozen regional funds to 6 billion. It worked.

Zbyněk Stanjura, the Czech finance minister, whose country holds the rotating EU presidency, said he was “very pleased” with the outcome.

“Our message is clear: the largest corporate groups, whether multinational or domestic, must pay corporate income tax worldwide, which cannot be lower than 15 percent,” Stanjura said.

This means that the EU will be one of the first jurisdictions in the world to introduce the 15 percent tax. However, it is unclear when and how the US will adopt it.

The rules apply to domestic and foreign multinationals with combined profits of more than 750 million euros a year – around 1,600 companies, according to the Treasury.

The rate of 12.5 percent continues to apply to smaller companies.

If a country does not tax the income of a large corporation at the minimum rate, the country where the parent company is located may levy an additional tax.

But the rate is just one “pillar” of the deal.

The other pillar — known as “Pillar One” — is a shift where the largest and most profitable (primarily technology) companies pay a portion of their taxes based on revenue.

A total of 137 countries – including all 27 EU members – agreed to apply both pillars in a historic agreement last October.

The EU has yet to release a “Pillar One” directive as the Paris-based Organization for Economic Co-operation and Development (OECD) is still working out the details. This should be completed by mid-2023.

This part of the deal could cost Ireland up to €2 billion a year in lost tax revenue, the government said. New 15 percent corporate tax from 2024 after EU deal

Fry Electronics Team

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