Hungary has dropped its opposition to the introduction of a global minimum corporation tax rate of 15% as part of a wider deal with the EU allowing implementation to proceed.
The country has agreed to unblock €18bn in financial aid to Ukraine, in return for reducing the amount of funding Budapest has seen frozen by the bloc.
Hungary had been blocking key EU initiatives, including the minimum corporate tax plan and vitally needed support for Kyiv, in a bid to pressure the bloc over its own funding row.
Brussels last month recommended freezing €7.5 billion of EU funds for Budapest, citing concerns over alleged corruption.
It has also been holding back €5.8 billion euros of post-Covid EU recovery money due to Hungary’s democratic backsliding and fears over its respect for judicial independence.
After days of haggling, EU ambassadors struck a compromise yesterday that saw Budapest greenlight the aid for Ukraine for next year and the 15% minimum tax.
In return, diplomats said the other EU countries agreed to cut the amount of frozen funds to €6.3 billion and take a step towards giving Budapest the post-Covid money.
“Megadeal!,” tweeted the Czech presidency of the EU late Monday.
The package was set to be formally confirmed later in the week.
The compromise with Hungary’s right-wing Prime Minister Viktor Orban means the EU can make good on its pledge to keep backing Ukraine as it fights Russia’s invasion.
It will also smooth the way for the introduction of the OECD brokered tax deal across the EU via directive, including in Ireland where the corporation tax rate is currently 12.5%.
Under the new arrangement, profits of large multinational and domestic groups or companies with a combined annual turnover of at least €750 million will be taxed at 15%.
The directive has to be transposed into member states’ national law by the end of 2023.
The OECD deal involving 140 countries was struck in October of last year.
“In our view, the announcement is welcome as it comes at a time when some EU Member States had indicated a willingness to take unilateral steps to implement the Pillar Two rules in the absence of unanimous agreement at EU level,” said tax advisors, Grant Thornton.
“Overall, it is very positive news as the EU Directive should provide consistency of application of the Pillar Two rules across the EU Member States.”
“However, it remains to be seen how this will be balanced with the administrative cost burden of implementation for global businesses.”