Hungary’s parliament voted Monday to block Prime Minister Viktor Orban’s government from signing an international agreement aimed at setting a global minimum tax on corporations, the latest setback in President Biden’s efforts to overhaul the international tax system.
The vote by Hungary’s Parliament is not binding on Orban, who has the power to sign the agreement without parliamentary approval. But it is highly unlikely that he will do so, given that his Fidesz party controls two-thirds of the seats in the legislature.
The agreement, which was brokered by the Organization for Economic Cooperation and Development, is designed to prevent companies from shifting their profits to low-tax jurisdictions in order to avoid paying their fair share of taxes. It would set a global minimum tax rate of 15 percent, which is higher than the rates in many tax havens.
The agreement has been signed by more than 130 countries, including the United States and most of the European Union. But it will not go into effect unless it is ratified by all of the signatories. Hungary’s refusal to sign the agreement means that it will not go into effect on time, which is set for 2023.
The Biden administration has made the global tax deal a top priority, and has been lobbying countries to sign and ratify it. Treasury Secretary Janet Yellen has said that the deal is essential for preventing companies from avoiding taxes and leveling the playing field for businesses.
But the deal has faced opposition from some countries, including Hungary and Ireland, which have low corporate tax rates and fear that the deal will hurt their economies. Orban has also criticized the deal, saying that it is unfair to developing countries and that it will lead to higher taxes for Hungarian businesses.
The failure of the global tax deal to go into effect on time is a setback for the Biden administration, and it is unclear when or if it will be able to be implemented. It is also a reminder of the challenges of achieving international cooperation on tax matters, even when there is a strong consensus among the world’s major economies.
In addition to Hungary, several other countries have expressed reservations about the global tax deal. Ireland, which has a 12.5 percent corporate tax rate, has said that it will not sign the agreement unless it is amended to protect its low-tax regime. Poland has also expressed concerns about the deal, and it is unclear whether it will ultimately sign it.
The global tax deal is a complex and ambitious undertaking, and it is likely to face further challenges before it is fully implemented. But it is also an important step towards ensuring that companies pay their fair share of taxes and that the international tax system is fair and equitable..
