While the 139 countries negotiating a global minimum tax overwhelmingly signaled support for a 15% deal, there were nine holdouts.
Treasury Secretary Janet Yellen announced on Thursday that 130 of the 139 countries involved in the Organization for Economic Cooperation and Development talks had agreed to the plan. The nine who didn’t sign on were Barbados, Estonia, Hungary, Ireland, Kenya, Nigeria, Sri Lanka, St. Vincent and the Grenadines, and Peru.
The three holdouts that are the most significant are Hungary, Estonia, and Ireland, because in order for the deal to work, the European Union needs to agree unanimously to the new rules and pass a law to do so.
Hungary, which has a 9% corporate tax rate, is led by populist Viktor Orban, whom many view as an autocrat. His country has been perhaps the most vociferous in its opposition to the global minimum tax. Following the Thursday OECD meeting, Hungarian Minister of Finance Mihaly Varga told reporters that the 15% level was “far too high” and could be a burden on economic activity.
“Hungary rejects any initiative that would lead to tax increases and weaken competitiveness,” he said according to a news release provided to the Washington Examiner by the Hungarian government.
Ireland, which has a 12.5% corporate tax rate, said that it has “reservations” about the 15% level that was agreed to by the other 130 countries, although its leaders have expressed a desire to get on board with some form of comprehensive global tax agreement.
“I have consistently spoken of my desire for a comprehensive, sustainable and equitable agreement on the international tax rules at the OECD that meet the needs of all countries, large and small, developed and developing,” said Irish Minister of Finance Paschal Donohoe.
“I was not in a position to join the consensus on the agreement and specifically a global minimum effective tax rate of ‘at least 15%’ today,” he added. “I have expressed Ireland’s reservation but remain committed to the process and aim to find an outcome that Ireland can yet support.”
Because the European Union and OECD need Hungary, Ireland, and Estonia to fall in line, they will probably apply pressure to those countries and offer other incentives in order to have them agree to the plan, according to Peter St. Onge, a research fellow for economic policy at the Heritage Foundation.
“If I had to guess, there is going to be a certain amount of horse-trading going on. All three of those countries are fairly small — it would be pretty easy to make them whole in some other way,” he told the Washington Examiner during an interview.
St. Onge said that while the relationships between larger EU countries and Ireland and Estonia are good, the relationship between Hungary and countries such as France and Germany is a bit strained because of Hungary’s domestic politics. However, St. Onge said that if he had to guess, the EU will eventually find a way to “bribe” Hungary and bring it over to supporting the tax agreement.
While logic would assume that the few holdouts (for example, St. Vincent and the Grenadines) might benefit and attract businesses by being one of the few places not under the 15% regime, St. Onge explained that the OECD can be incredibly coercive and “absolutely hunt” jurisdictions where they don’t like the tax rate.
“They have a lot of points of leverage if the other 90% of governments are on board,” he said.
While the Thursday agreement was significant, a lot of details need to be ironed out before any form of global minimum tax actually goes into effect, which is a reason why so many different countries (including China and India) were able to sign on, according to St. Onge.
There will be a lot of wheeling and dealing that will come into play as details begin to emerge. He said that the agreement was intended to be as broad as possible because, politically speaking, it is easier to start in broad strokes and get more countries on board and then work out the details versus starting with fine print that could scare away support.
Regardless of the coming negotiations, Yellen and the Biden administration are touting the Thursday agreement as a historic achievement that they contend will ensure corporations pay their fair share of taxes.
“For decades, the United States has participated in a self-defeating international tax competition, lowering our corporate tax rates only to watch other nations lower theirs in response. The result was a global race to the bottom: Who could lower their corporate rate further and faster? No nation has won this race,” Yellen said after the 130 countries signed on to the deal.
Washington Examiner Videos
Original Author: Zachary Halaschak
Original Location: Here are the nine countries spurning global minimum tax sought by Biden