The legal battle raises obstacles to the implementation by the EU of a global tax agreement


Brussels is working to overcome resistance from three EU member states that opposed it last week international agreement to rewrite corporate tax rules, with Hungary and Estonia arguing that the proposal could also break EU law.

The EU needs to have unanimous support from member states before it can adopt a proposal to rewrite the global corporate tax rules approved by the OECD last week. But Ireland, Hungary and Estonia have so far refused to sign the global agreement, setting up an internal EU deal with larger member countries.

U main, but not the only point of contention of the holdouts revolves around the 15 percent minimum tax rate proposed by the OECD.

Ireland has said it is “engaged in the process” and wants to find a result that Dublin can support, but has expressed reservations about proposing a globally effective minimum tax rate of at least 15 per cent. . Hungary also said that the minimum rate “prevents economic growth”.

In addition, Hungary and Estonia have argued that the current proposal violates EU law since it imposes on countries where large companies are based to apply that minimum tax rate to companies in lower tax jurisdictions. .

They argued that the minimum tax rule would violate a 2006 decision by the European Court of Justice involving the confiscation company Cadbury Schweppes.

The ruling says that basing multinational corporations on lower tax regimes does not constitute tax evasion.

“The ECJ’s decision on Cadbury Schweppes shows quite clearly that these types of rules should not exist under the current legal regime,” said Helen Pahapill, Estonia’s deputy director general for tax affairs.

Opposition within the EU sparked a confrontation between smaller and larger member states – who must all agree for the OECD proposal to become EU law.

The OECD agreement is made up of two main elements: a minimum effective tax rate of 15 per cent for multinationals, said Pillar 2; and Pillar 1, which will redistribute profits made by the top 100 home-based companies where they make their sales.

“Smaller EU countries have raised questions about the legality of Pillar 2 under EU law,” adds Pahapill.

The EU is looking to conquer holdouts in the coming months, ahead of an October target date for an OECD deal.

Daniel Gutmann, a colleague at law firm CMS Lefebvre, said Brussels would need to propose its regulation in a way that is compatible with the EU’s primary law on freedom of establishment for companies.

“If there are restrictions on this principle, the questions that the commission will have to answer is whether it is justified,” he said.

However, officials close to the negotiation said the concept of the global minimum tax had been discussed with the European Commission’s legal department and they were confident it was compatible with EU law.


Poland had also expressed reservations about the minimum fiscal proposal, arguing that it would undermine economic growth. But Warsaw last week came to support the OECD agreement.

Tadeusz Koscinski, Poland’s finance minister, told the Financial Times that his country had decided to back the deal after the inclusion of a sculpture for substantial business activity, which had been absent earlier in the negotiations.

“We need tools.” [to incentivise business to locate in Poland] and one of these is our domestic tax regime, ”he said.

“I’m not interested in companies from France or Germany coming into Poland to sell back to France and Germany and transfer the profits to Poland,” Koscinski adds. “But they are the ones who come to Poland to help us build our innovation capabilities and sell in the local and third-party market. It’s going to count on a minimum global tax.”

While this obstacle has now been overcome, at least in the case of Poland, another complication is a planned European tax on digital services.

Opposed by Washington, which is largely aimed at major US technology companies, Brussels is however expected to release its proposal later this month.

EU leaders sent the commission last July to draw up the levy, part of which would be used to repay the loans accumulated in its next-generation EU recovery plan of 800 billion euros.

The European Parliament is particularly interested in seeing the introduction of new sources of revenue attributed to the commission, such as the digital tax.

The EU’s previous attempt at a technology tax was founded in 2019, but the idea was revived when the Trump administration launched obstacles to an international process.

The commission says the new tax would apply to hundreds of companies, mostly European, and would complement the global tax deal, rather than clash with it.

But the EU is putting pressure from the US to delay the idea, given that the global corporate tax agreement is intended to replace national digital taxes. Washington said in a recent document sent to EU diplomats that the tax proposal now risks “completely derailing” tax negotiations, taking into account the sensitive state of the issue.

Pascal Saint-Amans, head of the tax administration at the OECD, said: “There is a dynamic of discussions and we hope that all countries will eventually adhere to the agreement.”

More information from Laura Noonan is Marton Dunai

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