Poland blocks EU move to sign up to minimum corporate tax

Poland has blocked progress of an EU directive seeking to implement the global minimum corporate tax agreed last year, setting back the bloc’s efforts to adopt the measure.

In a landmark agreement in October last year, 137 countries backed the introduction of a new 15 per cent minimum effective corporate tax rate on large businesses, known as pillar two.

The reform is set to raise global tax revenues by more than $150bn a year. The same agreement also backed forcing the world’s 100 biggest multinationals to declare profits and pay more tax in the countries where they do business, known as “pillar one”.

In order to make the deal a reality, countries need to put the minimum tax into their domestic law. The EU plans to do this via a directive and requires unanimity from all member states for the measure to go ahead.

However, on Tuesday, Poland disrupted the plans by opposing the proposed directive at a meeting of EU finance ministers in Luxembourg.

Magdalena Rzeczkowska, Poland’s finance minister, argued that the country could not support the minimum tax going ahead without first having “legally binding” assurances that reforms targeting the largest 100 companies would be enacted.

That part of the deal requires countries to agree a multilateral convention, and negotiations are running slower than the plans for the global minimum tax.

Rzeczkowska said: “We strongly believe that we should be mindful of the inadequacy of placing additional burden on European businesses under pillar two without ensuring the digital giants are fully taxed under pillar one.”

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 presidency of the EU, which ends in June.

He pointed out that the deal had been supported by all EU member states, including Poland, at the international level via the OECD negotiations. The council had “addressed” Poland’s concerns by including wording that indicated the EU’s intention for the two parts of the deal to work as a package.

“I’ll say very clearly, I am absolutely not convinced by the Polish argument,” Le Maire said at the council meeting. All member states had worked towards finding consensus, he added, saying he “deeply regret[ed] that Poland does not understand that”.

Speaking after the meeting of the economic and financial affairs council, Valdis Dombrovskis, commission executive vice-president, said he was not in a position to interpret the motivations and justifications of Poland. But he was hopeful that there would be agreement at next month’s meeting.

“This mystery has to be brought up with Warsaw, rather than the French presidency,” added Le Maire.

Separately, Poland is engaged in negotiations with Brussels to unlock its portion of the EU’s recovery funds.

The development means that implementation of the global tax deal remains stalled on both sides of the Atlantic.

The draft legislation contained in US president Joe Biden’s build back better bill, which would align the US tax system with the international proposal on a global minimum tax, has been delayed as a result of the Democrats’ inability to gain backing from within the party.

No draft legislation has yet been brought forward in Washington and Brussels on pillar one.

However, when asked if the global tax deal was in “jeopardy” because of hurdles in the US and EU, Le Maire said that determination to pass the deal remained strong.