A worldwide minimum tax is hot topic

September 15, 2022

Last year a historic agreement was reached on a worldwide minimum tax for multinationals. Under the leadership of the Organization for Economic Co-operation and Development (OECD), 137 countries have agreed to a minimum tax of 15% for multinationals even in countries where they do not have a physical presence.

Introduction of worldwide minimum tax delayed

The worldwide introduction of a minimum tax for multinationals was initially proposed to come into effect early 2023. In the meantime, the deadline for the introduction of the worldwide tax rate had already been pushed back to January 2024 at the earliest. Due to the complexity, much remains to be done before implementation.

Blockades within the European Union

The minimum tax rate of 15 percent requires the unanimous approval of the 27 members of the European Union. However, after the agreement of last year, both Poland and Hungary blocked the agreement. Poland has previously dropped its objections. If Hungary does not move, other member states can circumvent that veto by making agreements about the interpretation of the minimum rate.

Circumvention of blockades

Last week, European finance ministers gathered for a meeting in Prague. During that meeting, the Netherlands, together with Germany, France, Italy and Spain, announced that they would nevertheless commit to the introduction of the minimum tax in 2023, even if Hungary does not give in and the European Union cannot implement the plan as a fully united front. The EU has a procedure called ‘enhanced cooperation’, whereby some of the member states could nevertheless introduce the rate jointly. An individual country may also introduce the rate through national legislation.

The ‘European Tax Observatory’ reported last year that the Netherlands can raise 1 billion euros extra in tax money with a minimum rate of 15 percent. At European level, this could even lead to an increase of EUR 50 billion in tax revenue.

Current tax rates

Currently, most EU countries already have a tax rate of 15 percent or more. Within the EU, Cyprus (12.5 percent), Ireland (12.5 percent) and Hungary (9 percent) have a lower rate.