Poland has blocked the implementation of an EU directive global minimum corporate tax agreed last yearthrowing back the bloc’s efforts to adopt the measure.
In a landmark agreement last October, 137 countries backed the introduction of a new 15 percent effective corporate tax rate for large companies, known as Pillar Two.
The reform is expected to increase global tax revenues by more than $150 billion a year. The same agreement also backed a requirement for the world’s 100 largest multinational companies to declare profits and pay more taxes in the countries where they do business, known as “Pillar One”.
In order for the agreement to become a reality, countries must incorporate the minimum tax into their national law. The EU is planning this via a directive and requires the unanimity of all member states for the implementation of the measure.
On Tuesday, however, Poland disrupted the plans by opposing the proposed directive at a meeting the EU finance ministers in Luxembourg.
Magdalena Rzeczkowska, Poland’s finance minister, argued that the country could not support the future minimum tax without first having “legally binding” pledges that reforms would be implemented for the 100 largest companies.
This part of the deal will require countries to agree to a multilateral convention, and negotiations are proceeding at a slower pace than plans for the global minimum tax.
Rzeczkowska said: “We strongly believe that we should be aware of the inadequacy of imposing additional burdens on European companies under the second pillar without ensuring that the digital giants are fully taxed under the first pillar.”
The decision sparked frustration from other member states, including France, whose Finance Minister Bruno Le Maire has been leading negotiations on the directive as part of France’s EU Council presidency, which ends in June.
He pointed out that the agreement had been supported by all EU member states, including Poland, at the international level through the OECD negotiations. The Council had “addressed” Poland’s concerns by including language that indicated the EU’s intention for the two parts of the deal to work as a package.
“I will say very clearly that I am not at all convinced by the Polish argument,” Le Maire said at the council meeting. All member states have been working towards finding a consensus, he added, saying he “deeply regrets it[ed] that Poland doesn’t understand that”.
Valdis Dombrovskis, Executive Vice-President of the Commission, said after the Economic and Financial Affairs Council meeting that he was unable to interpret Poland’s motives and justifications. But he hopes that there will be an agreement at the meeting next month.
“This secret must be raised with Warsaw and not with the French Presidency,” Le Maire added.
Regardless, Poland is in negotiations with Brussels to release its share of the EU’s dismantling funds.
The development is causing the implementation of the global tax deal to stall on both sides of the Atlantic.
The draft bill in US President Joe Biden’s “Build Back Better” bill that would align the US tax system with the international proposal for a global minimum tax has been delayed because Democrats were unable to garner support from within the party.
No first pillar bill has yet been tabled in Washington and Brussels.
However, when asked if the global tax deal was “at risk” due to hurdles in the US and EU, Le Maire said determination to pass the deal remained strong.
https://www.ft.com/content/912528e9-1c1d-4e18-9366-fc067f4f524b Poland blocks EU move to sign minimum corporate tax