Hungary Threatens to Upset EU Approval of Global Tax Deal

(Bloomberg) -- Hungary threatened to stall the European Union’s efforts to agree on a global minimum tax, just as the bloc was on the verge of a breakthrough after negotiating tweaks to get Poland’s backing.

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Hungary told EU ambassadors on Wednesday it is no longer in a position to back a compromise deal due to changed economic conditions, including the war in Ukraine, according to people with knowledge of the matter. The country has requested the item be removed from the agenda of a meeting on Friday in Luxembourg that was expected to give a green light to the plans.

“Europe is in deep enough trouble without the global minimum tax,” Hungarian Foreign Minister Peter Szijjarto said in a video posted on Facebook Thursday. “We’re not supporting a hike in taxes for Hungarian companies and we’re not willing to put jobs in danger.”

Budapest’s reversal in position from last year is a blow to the delicate and drawn-out negotiations on an international initiative on taxation. France, whose presidency of the EU ends this month, had spent weeks negotiating with Poland, which had been the sole holdout at recent meetings. Changes to tax rules in the EU require unanimous backing.

The inertia in Europe could have broader consequences for the implementation of a global deal that also includes new rules on taxing multinationals in places where they operate. In a sign of how important a deal in Europe is, US Treasury Secretary Janet Yellen discussed the situation with Polish officials during a visit to Warsaw in May.

Hungary’s effective veto threat puts the country’s premier, Viktor Orban, in a familiar position. Orban, now the EU’s longest-serving head of government, has clashed repeatedly with the bloc over the erosion of democratic norms and his proximity to Russian President Vladimir Putin. Just weeks ago, he played the spoiler to wring exemptions from the EU’s oil sanctions against Russia for his country.

An EU diplomat said officials in Brussels were taken aback by the final-hour obstruction from Hungary and have not received any request to change the substance of the text. Unrelated subjects may be part of the equation and the meeting of finance minister’s in Luxembourg on Friday will be a key political moment, the diplomat said, speaking on condition of anonymity.

Hungary’s reluctance comes just as the Polish government indicated it is ready to drop its objections at Friday’s meeting, according to people familiar with negotiations. In return, Poland can expect to be granted an additional commitment on the implementation of the so-called Pillar One of the global deal, covering companies like Alphabet Inc.’s Google and Amazon Inc..

Finance Minister Magdalena Rzeczkowska told Bloomberg last week Poland may lose out on foreign investment if Pillar Two -- the minimum levy -- is the only part of the deal to be implemented.

The concession that Poland expects to receive by Friday will include a commitment that the EU will monitor and assess the progress on the implementation of Pillar One. If it turns out to be insufficient by mid-2023, the bloc would start working on a separate directive that reflects this part of the global deal within the EU, the people said.

(Updates with Szijjarto comment in third paragraph, EU diplomat in seventh)

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