The OECD has been working since 2019 to create a global minimum corporate tax rate that has received increasing attention in recent weeks. The essence of the deal is to prescribe a minimum corporate tax for multinationals. The agreement is an important step towards a global consensus, but details have yet to be negotiated and broad support from countries around the world remains to be achieved.
Current legislation allows companies to shift their profits and tax revenues to low-tax countries. To prevent this, the basic idea is that EU member states tax multinational companies according to uniform rules, so that taxation takes place where the sales are made.
The aim of the effort is that if the tax liability of a subsidiary of a multinational company in a country does not reach the specified minimum, the difference can be collected by the parent company, or, if it does not wish to, the country of other subsidiaries.
So, for example, if a global minimum corporate tax rate of 15% is introduced, a parent company with a subsidiary in Hungary would have to pay 6% corporate tax difference at home, as the Hungarian corporate tax rate is now 9%.
Much still needs to be ironed out. For instance, the level of global sales is not yet known, above which a multinational will be subject to global minimum tax rate, but some details appear to be taking shape. On June 5, Finance Ministers from the G7 nations have backed the creation of a global minimum corporate tax rate of at least 15% and in July additional financial leaders of the world’s 20 biggest economies (G20) may endorse the draft.
A possible new agreement may also be of great importance for Hungary, as a 15% corporate tax rate may thus mean a significant reduction in competitive advantage. However, when adopting the regulations, it is also necessary to consider exactly what taxes can be included in this scope and to what extent. Thus, the inclusion of local business tax and innovation contribution among the possible taxes can be a key strategic goal for Hungary during the negotiations.
Another important question is what exactly the basis of the minimum tax will be. According to the proposal, the minimum tax base would be determined on the basis of the accounting rules applicable to consolidated financial statements in the country of the parent company. However, the corporate tax base of the individual countries may differ for several reasons.
It is not yet clear what will happen to the corporate tax allowances provided by Hungary, such as the development tax allowance or the R&D tax allowance. In the case of a minimum tax rate higher than the Hungarian corporate tax rate, these may no longer be relevant.
Another key issue is how to deal with the differences between Hungarian and multinational companies. Although the regulation should in principle be created uniformly, i.e. consistently for all taxpayers, an important economic policy goal is to keep the corporate income tax burden at the previous level. Thus, it is questionable whether, in addition to international companies, Hungarian small businesses would also be taxed according to the new tax rate in the future, or from now on there will be two corporate tax rates.
To sum up, there are still a lot of questions about how a global minimum tax can be put into practice. If the proposal is adopted, it is also in the interest of Hungary and the world economy to provide well-conceived responses to these questions that consider reasonable needs.