Wednesday

28th Feb 2024

Hungary and Estonia blocking EU tax reform

  • EU economy commissioner Paolo Gentiloni accused Hungary and Estonia of blocking the proposal for new tax rules (Photo: European Commission)
Listen to article

Hungary and Estonian diplomats have blocked a revised set of EU tax rules - potentially derailing an effort to curb the race for ever-lower corporate taxes in the EU.

The current rules were drafted in 1997 and have since then not been adjusted to a new 21st century reality.

Read and decide

Join EUobserver today

Get the EU news that really matters

Instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

International tax competition has become globalised and much more widespread compared with the late 1990s when lawmakers first drafted the rules, which have led EU countries to miss out on €160bn in tax income annually, according to the Organization for Economic Cooperation and Development (OECD).

But reform has proven elusive. Debates by the Code of Conduct Group - the EU body responsible for enforcing the tax laws - have been held behind closed doors, without taking notes, making it hard for lawmakers to access information or keep track of progress.

After years of deliberation, member states have now put a new ruleset on the table, which a political advisor - who asked to remain anonymous - described to EUobserver as "unambitious, but at least a step forward."

But when the committee of member state ambassadors (so-called Coreper I) discussed the updated ruleset, they failed to agree.

On Tuesday, EU ministers of finance will vote on the proposal.

But chances for a breakthrough are low, with EU commissioner for economy Paolo Gentiloni publicly telling MEPs last week that Hungary and Estonia are the ones blocking the new rules - officially known as the Code of Conduct for Taxation.

"If the vote fails, it shows how unanimous decision-making does not work," noted the political adviser.

Because the debates are held behind closed doors, what may have motivated Hungary and Estonia to block the new rules is unclear.

But in parallel negotiations, Hungary and Estonia have also opposed a proposal for a global minimum tax.

The OECD, the US and the EU want to implement a global minimum tax rate of 15 percent.

In the EU, this proposal will come up for a vote on 22 December.

But Estonia and Hungary want to delay implementation. "Blocking the Code of Conduct may be a way of improving their negotiating position in the vote for a minimum tax," according to Chiara Putatouro, tax policy advisor at Oxfam international.

Secrecy and evasion

Martijn Nouwen, an assistant law professor at the University of Leiden, recently uncovered and analysed 2,500 confidential documents from the Code of Conduct group, not only showing the non-transparent nature of the EU body tasked with enforcing tax rules, but also their ineffectiveness.

The Code of Conduct rules have failed to prevent tax evasion, and member states have proven to be lax in enforcing the rules, according to Nouwen.

In an interview with the German weekly Der Spiegel, he added that the new rules - even if member states reach an agreement on Tuesday - will not solve the most important problems, leaving open the most-used accounting tricks.

The new rules provide some rules on transparency but will only make public documents "if appropriate."

But companies will still be able to evade national laws by setting up letterbox companies in low tax countries, and, most importantly: the rules will only apply to countries, not people - while a lot of the competition between countries is aimed at attracting high-net worth individuals.

Dutch minister draws fire on EU and tax-havens

Dutch finance minister Wopke Hoekstra should excuse himself from an EU decision on tax-havens after he was named in the 'Pandora Papers' revelations, a leading MEP has said.

Opinion

Hungary: why we can't support a global minimum tax

This month the OECD Inclusive Framework agreed on the main building blocks of new tax legislation for a global minimum tax and for the digital economy. However, Hungary did not join - this is why.

Bermuda and BVI face EU pressure on tax reform

​The European Union is expected to add Bermuda, the British Virgin Islands, Israel and Russia to a so-called grey-list of tax-havens, in a public relations blow.

Latest News

  1. Podcast: Hyperlocal meets supranational
  2. Von der Leyen appeals for 'new EU defence mindset'
  3. EU supply chain law fails, with 14 states failing to back it
  4. Joined-up EU defence procurement on the horizon?
  5. Macron on Western boots in Ukraine: What he really meant
  6. Amazon lobbyists banned from EU Parliament
  7. MEPs adopt new transparency rules for political ads
  8. EU nature restoration law approved after massive backlash

Stakeholders' Highlights

  1. Nordic Council of MinistersJoin the Nordic Food Systems Takeover at COP28
  2. Nordic Council of MinistersHow women and men are affected differently by climate policy
  3. Nordic Council of MinistersArtist Jessie Kleemann at Nordic pavilion during UN climate summit COP28
  4. Nordic Council of MinistersCOP28: Gathering Nordic and global experts to put food and health on the agenda
  5. Friedrich Naumann FoundationPoems of Liberty – Call for Submission “Human Rights in Inhume War”: 250€ honorary fee for selected poems
  6. World BankWorld Bank report: How to create a future where the rewards of technology benefit all levels of society?

Stakeholders' Highlights

  1. Georgia Ministry of Foreign AffairsThis autumn Europalia arts festival is all about GEORGIA!
  2. UNOPSFostering health system resilience in fragile and conflict-affected countries
  3. European Citizen's InitiativeThe European Commission launches the ‘ImagineEU’ competition for secondary school students in the EU.
  4. Nordic Council of MinistersThe Nordic Region is stepping up its efforts to reduce food waste
  5. UNOPSUNOPS begins works under EU-funded project to repair schools in Ukraine
  6. Georgia Ministry of Foreign AffairsGeorgia effectively prevents sanctions evasion against Russia – confirm EU, UK, USA

Join EUobserver

EU news that matters

Join us