The big question in Brussels for the autumn is whether or not an agreement on the minimum taxation (Pillar Two) Directive can be achieved. Hungary remains the main outstanding obstacle, and the patience of other EU member states and the European Commission is running thin.
In July, Czech Republic took over from France the Council’s six-month rotating presidency. Soon after the beginning of their ‘term’, the Czech finance minister Zbyněk Stanjura told the European Parliament that they would aim for an agreement on the Pillar Two Directive in October, clarifying later that either way by the end of 2022.
As a reminder, all 27 EU member states must agree to the proposal before it can become EU law. Hungary used its veto at the 17 June finance ministers’ meeting, and presumably there has still been no white smoke on them lifting it. Many observers – including fellow EU governments – suspect that Hungary is blocking progress on the file in order to gain concessions in completely unrelated areas. One of the tensest points of contention is the Commission blocking Hungary’s access to EU Covid recovery funding due to concerns around rule of law and corruption in the country.
This continuing impasse is starting to cause impatience. The European Commission is now considering whether to make use of the so-called ‘enhanced cooperation’ mechanism to find agreement on the file. As a reminder, enhanced cooperation would allow a group of EU member states (a minimum of nine) to adopt a EU proposal and implement it in their own countries. The Commission previously expressed is preference for finding a full consensus rather than using enhanced cooperation as a way forward. However, reportedly in early September the Commission circulated a questionnaire to EU countries asking for their views on the tool.
However, as many things in life that sound too good to be true, enhanced cooperation too carries its own risks. Making use of it to go around Council’s unanimity requirement for tax decisions could provoke smaller EU member states to object, fearing that it would create a dangerous precedent for the Commission to use enhanced cooperation on any and all tax proposals in the future. So far, enhanced cooperation was used only once – for the EU’s 2013 financial transaction tax (FTT) proposal – but until this day no agreement between the participating member states has been reached. This means that the Commission needs to carefully assess the relative benefits and risks of the unusual move of resorting to enhanced cooperation now.
Around the same time, five EU countries – Germany, France, Italy, Spain and Netherlands – issued a letter expressing their intent to progress on Pillar Two despite Hungary’s opposition, and to implement it in their own countries separately. Their stated aim is to implement it in the course of 2023.
Overall, it is difficult to distinguish what are genuine strategic efforts to reach an agreement on the Directive or mere negotiation tactics to pile pressure on Viktor Orban’s government. However, the main take-away is that Pillar Two momentum is back and the Czech Council Presidency, with the support of a majority of EU countries and the Commission, will work hard to make it a reality in the EU in the course of 2022 still.
Home >Articles > EU watch: Pillar Two Directive gaining new momentum
EU watch: Pillar Two Directive gaining new momentum
The big question in Brussels for the autumn is whether or not an agreement on the minimum taxation (Pillar Two) Directive can be achieved. Hungary remains the main outstanding obstacle, and the patience of other EU member states and the European Commission is running thin.
In July, Czech Republic took over from France the Council’s six-month rotating presidency. Soon after the beginning of their ‘term’, the Czech finance minister Zbyněk Stanjura told the European Parliament that they would aim for an agreement on the Pillar Two Directive in October, clarifying later that either way by the end of 2022.
As a reminder, all 27 EU member states must agree to the proposal before it can become EU law. Hungary used its veto at the 17 June finance ministers’ meeting, and presumably there has still been no white smoke on them lifting it. Many observers – including fellow EU governments – suspect that Hungary is blocking progress on the file in order to gain concessions in completely unrelated areas. One of the tensest points of contention is the Commission blocking Hungary’s access to EU Covid recovery funding due to concerns around rule of law and corruption in the country.
This continuing impasse is starting to cause impatience. The European Commission is now considering whether to make use of the so-called ‘enhanced cooperation’ mechanism to find agreement on the file. As a reminder, enhanced cooperation would allow a group of EU member states (a minimum of nine) to adopt a EU proposal and implement it in their own countries. The Commission previously expressed is preference for finding a full consensus rather than using enhanced cooperation as a way forward. However, reportedly in early September the Commission circulated a questionnaire to EU countries asking for their views on the tool.
However, as many things in life that sound too good to be true, enhanced cooperation too carries its own risks. Making use of it to go around Council’s unanimity requirement for tax decisions could provoke smaller EU member states to object, fearing that it would create a dangerous precedent for the Commission to use enhanced cooperation on any and all tax proposals in the future. So far, enhanced cooperation was used only once – for the EU’s 2013 financial transaction tax (FTT) proposal – but until this day no agreement between the participating member states has been reached. This means that the Commission needs to carefully assess the relative benefits and risks of the unusual move of resorting to enhanced cooperation now.
Around the same time, five EU countries – Germany, France, Italy, Spain and Netherlands – issued a letter expressing their intent to progress on Pillar Two despite Hungary’s opposition, and to implement it in their own countries separately. Their stated aim is to implement it in the course of 2023.
Overall, it is difficult to distinguish what are genuine strategic efforts to reach an agreement on the Directive or mere negotiation tactics to pile pressure on Viktor Orban’s government. However, the main take-away is that Pillar Two momentum is back and the Czech Council Presidency, with the support of a majority of EU countries and the Commission, will work hard to make it a reality in the EU in the course of 2022 still.
