Global Corporate Tax: France says EU can bypass Hungarian veto

France will look at bypassing Hungary’s veto on a global corporate tax, an official has said after the measure was defeated last week.

“Minimum taxation will be implemented in the coming months without or with Hungary,” French Finance Minister Bruno Le Maire told reporters on Thursday.

“Everyone knows that Hungary’s ultimate blockage has absolutely nothing to do with minimum taxation,” he continued, adding that “Europe can no longer be hostage to the ill will of some of its members”.

He stated that he is now working on “alternative solutions” with Paolo Gentiloni, the EU’s Economy Commissioner and that “we will explore, we have started to explore, other possibilities to implement Pillar II [the other name for the Global Corporate Tax] without resorting to a unanimously adopted directive.”

The deal piloted by the Organisation for Economic Co-operation and Development (OECD) to impose a 15% minimum tax on multinational corporations was endorsed by 136 countries last year. Together, they account for more than 90% of global GDP.

But Hungary, which had first backed the deal, then announced its opposition to it arguing that the tax would deal a “low blow” to European competitiveness when economies worldwide are suffering amid high inflation and a cost of living crisis related to Russia’s war in Ukraine.

As a European Directive pertaining to finance needs unanimity to be rolled out, Budapest’s veto has derailed its adoption across the 27 member states.

Enhanced cooperation

Yet, with just one day to go before handing the baton to Prague, who next takes on the EU Presidency, Le Maire affirmed: “I will not let go”.

Failure to have reached an agreement on this file has cast a shadow over the French Presidency’s legacy.

“I had the US Treasury Secretary, Janet Yellen, on the phone yesterday to inform her that we are exploring other avenues,” he also said.

The solution envisaged by Paris is to set up an “enhanced cooperation” as allowed under Article 329 of the Treaty on the Functioning of the European Union (TFEU).

This instrument is meant to be used only in areas not included in fields of exclusive competence on which the EU alone is able to legislate and adopt binding acts. These include matters related to the establishing of competition rules necessary for the functioning of the internal market and monetary policy. Issues pertaining to common foreign and security policy also cannot be the subject of enhanced cooperation.

To proceed forward, the enhanced cooperation would first have to be recommended by the Commission and backed by MEPs.

Small snag, it would then have to be unanimously backed by the European Council, where Hungary could potentially wield its veto once more.

But Le Maire also said that the enhanced cooperation is “one of the avenues we are working on with Paolo Gentiloni”.

‘A priority for us’

According to Zach Meyers, a senior research fellow at the Centre for European Reform (CER), “if the French presidency gives up on an EU-wide directive to implement the minimum global corporate tax because of Hungary’s veto, then any alternative will be far less legally robust.”

“The European Court of Justice (ECJ) has already ruled that EU member states cannot stop corporates from taking advantage of lower tax rates available in other member states: when the UK was a member of the EU, it proposed to do this, and the regime was struck down.”

“The global minimum corporate tax is structured in a similar way. If only some EU member-states signed on, those EU member states would be allowed to impose a ‘top-up’ tax on a corporate, if that corporate paid below the minimum corporate tax in another EU member-state,” he explained to Euronews.

Meyers highlighted that although the ECJ could try to distinguish Pillar II from the earlier UK case, “based on existing case law, the ECJ could well strike down the French plan.”

The Commission for its part stressed on Thursday that “we are absolutely committed to the implementation of this agreement that was reached at the international level.”

“Implementing Pillar II is a priority for us,” Daniel Ferrie, the Commission’s spokesman for taxation, told Euronews. “Our plan remains of course to continue work on this, to reach unanimity and that’s where are right now.”