Global Tax Deal Moves Closer as Hungary, a Low-Tax Holdout, Signs On

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An effort to enact the biggest overhaul to the international tax system in a century gained further momentum on Friday when Hungary, one of the remaining holdouts in a group of more than 130 nations, said it would agree to adopt a 15 percent global minimum tax rate.

A deal, which is expected to be announced later Friday, would represent the culmination of years of fraught negotiations that were revived this year after President Biden took office and renewed America’s commitment to multilateralism. Finance ministers have been racing to finalize the agreement, which they hope will reverse a decades-long race to the bottom of corporate tax rates that have drained countries of the revenue that they need to build new infrastructure and combat global health crises.

In addition to Hungary, which had sought sweeter terms, two other countries that had refused to back the deal out of fear their economies could be damaged signed on. Hours before Hungary’s announcement, Ireland and Estonia, two important holdouts, ratified the deal.

The negotiations have been overseen by the Paris-based Organization for Economic Cooperation and Development.

The agreement would include a 15 percent minimum corporate tax rate, which had been proposed by the United States, and rules that would force technology giants like Amazon and Facebook and other big global businesses to pay taxes in countries where their goods or services are sold, even if they have no physical presence there.

The accord would represent a sea change in the way the world’s largest corporations have been taxed for decades, and is likely to see them pay more taxes while spreading taxable revenues more evenly to countries where those businesses earn sales. Until now, profits have largely been taxed where businesses have had a physical presence.

Countries have set a goal of fully activating the agreement by 2023, since it will take time for countries to change their tax laws and for international tax treaties to be updated.

The sputtering talks gained momentum last May when the United States agreed to accept a minimum tax of at least 15 percent, which was lower than the 21 percent it was hoping to secure.

At international forums during the summer, negotiators grappled over potential carve-outs, an implementation period and how the agreement wold be enforced once enacted.

Among the biggest questions were how the European Union would cajole holdout countries such as Ireland, Estonia and Hungary, whose economic models have been built around low tax rates, to sign on. Without unanimity in the European Union, the agreement cannot be enacted.

With those three countries now joining the deal, the agreement is on its way to becoming a reality.

Hungary said that it would sign on to the accord after Prime Minister Viktor Orban, who has been at odds with the European Union on unrelated rule-of-law issues, held out for better terms to ensure that the nation’s economy wouldn’t lose a competitive edge.

Hungary has long offered a 9 percent corporate tax rate to lure investment. It wrested an exemption that would let multinationals reduce profits subject to the minimum tax for a transition period of 10 years, rather than the five-year period originally proposed.

“We have managed to reach a breakthrough on the global minimum tax deal,” Finance Minister Mihaly Varga said. “So Hungary could join the deal with a good heart.”

Ireland came around after securing a commitment that its smaller companies, with annual revenues under 750 million euros, would not face the new higher tax. It also convinced counterparts to drop the words “at least” from a draft of the O.E.C.D. statement, ensuring that the minimum tax would not be ratcheted higher.

“I am satisfied that Ireland’s interests are better served within the agreement from my contact and negotiation with international stakeholders in Europe, the United States and beyond,” Paschal Donohoe, Ireland’s finance minister, said in a statement on Thursday.

And Estonia announced its backing of the deal Thursday after resolving concerns that a minimum tax could harm the country’s entrepreneurs.

The agreement is expected to be finalized next week in Washington by finance ministers of the Group of 20 largest economies, and national leaders are likely to sign off when they meet for a summit in Rome at the end of October.

But that is just the beginning of a bigger fight to make the pact work, so governments can start collecting taxes that they say they sorely need to help revitalize their economies in the wake of the pandemic.

Congress still needs to ratify any deal, and European governments are watching anxiously to see whether President Biden can get the legislation passed to ensure that the United States is in compliance with the deal that it helped broker.

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