Tax News: UK reviews tax hike, Hungary to block pillar 2, Shareholders slam MNEs

In the midst of a political crisis, the UK government may review its proposal to raise corporation tax this week, and Hungary is in discussions with the US Republican Party about the world's minimum tax rate.

The new UK Chancellor Nadhim Zahawi hinted at reviewing government plans to raise corporation tax from 19 percent to 25 percent for April 2023 as the UK government faced a leadership crisis.


"I will look at everything. There’s nothing off the table. I want to be one of the most competitive countries in the world for investment," said  Zahawi.


He continued, "I know that boards around the world, when they make investment decisions, they’re long-term, and the one tax they can compare globally is corporation tax. ."


On Tuesday, July 5, Zahawi took over as chancellor from Rishi Sunak. Sunak came up with the idea to increase corporation tax in order to cover the emergency expenses incurred due to the COVID-19 pandemic. Sunak, however, submitted his resignation this week and demanded that Prime Minister Boris Johnson resign.

The prime minister decided to step down as the leader of the Conservative Party after more than 50 ministers quickly followed. On July 7, Johnson made a public statement announcing his resignation.


"I’ve agreed with Sir Graham Brady, the chairman of our backbench MPs, that the process of choosing that new leader should begin now," he said.


Johnson intends to serve as caretaker prime minister through the end of October, but the Conservative Party will hold a leadership contest. In the interim, changes to UK tax law may be made.


The UK government announced the corporation tax would stay at 19 percent for the fiscal years 2020 to 2022 in the 2020 budget. The rate was supposed to rise to 25% in the fiscal year 2023. Now, this is in question.


As a result of pressure on the economy and finances brought on by Brexit, COVID-19, and Russia's invasion of Ukraine, tax increases or spending reductions may be necessary in the UK.


The Office for Budget Responsibility (OBR) reported on July 7 that the UK's public debt had reached a "unsustainable" level. According to the OBR report, the average fiscal cost of recessions could cause the public debt to rise above 320 percent of the nation's GDP.


More announcements are anticipated for UK taxpayers the following week, but a new Conservative leader may not be chosen until September.


Hungary and the GOP are in talks to prevent pillar two.


According to The Washington Post, the Hungarian government has stated that it is collaborating with US Republican lawmakers to find ways to block the implementation of an EU directive that would impose a global minimum tax rate on multinational corporations.


Senior Republican officials are advising Hungary's foreign minister, Péter Szijjártó, on how to stop the proposal, the minister said.


This comes after Republican opposition to the global tax proposal, which has been delayed in Congress due to concerns that it will reduce US competitiveness.


The OECD agreement, which was negotiated by 137 nations in October 2021, aims to impose a global minimum effective tax rate and revise international taxing rights. 15 percent would be the minimum rate.


After Budapest withdrew its prior support for the measure at a meeting of EU finance ministers in Luxembourg in June, the EU was unable to come to an agreement on a directive to impose the minimum tax rate in the bloc.


This dealt a blow to the EU, which had hoped to gain support for its pillar two directive position after beating back Poland's opposition.


In its dispute with the European Commission, Pillar Two encountered opposition from Poland due to worries about the rule of law in the country of Eastern Europe. As a result, the EU took longer than expected to approve the country's €36 billion ($37.9 billion) COVID-19 economic recovery package.


The Hungarian government disputes this, citing broader economic concerns as the basis for its hesitation to support the EU plan. Some observers speculate that Hungary may be using the OECD agreement as a bargaining chip to obtain more financial support from the EU.


Bruno Le Maire, the minister of finance for France, suggested that the EU might think about finding an alternative to Hungary. Cooperation could be improved to accomplish this.


Just nine EU members would need to agree to the proposal for enhanced cooperation, and at the very least, the majority of EU members are in favor of it. This might be one method by which the minimum rate materializes in the EU.


The first pillar requires multinational corporations to report and pay taxes on digital profits in the nations in which they do business. The specifics of the new taxing rights are, however, hotly debated. However, the OECD sought to reach agreement on the specifics of pillar one and put the plan into action by 2023.


But delays at the global and EU levels have pushed the start date back to 2024.


As reported, after the government revised its stimulus package, Japan reported a windfall from all types of taxes on June 4. Greater corporate tax incentives for businesses could result from this.


Despite demands from the International Monetary Fund to reduce spending and raise taxes in response to the COVID-19 pandemic in January 2022, the Japanese government reported a record estimate of 67 trillion ($496.2 billion) in revenue for fiscal year 2021–2022.


According to tax experts, this will probably encourage future budgets to spend more on incentives as well. They anticipate increased government spending on growth-stimulating measures like targeted tax breaks or patent box benefits.


With sales tax, corporate tax, and personal income tax bringing in the most money, this sets a record for the second year in a row. Based on information from Reuters, all tax revenue projections have been increased from the initial calculations.


MNEs are targeted by shareholders with GRI transparency proposals.


In other news, the largest shareholders of Amazon, Cisco, and Microsoft are pushing for the GRI tax transparency standard, but this could signal the beginning of a wave of shareholder activism.


As more public companies come under pressure from investors to release information in country-by-country reports, at least thirty companies may adopt the Global Reporting Initiative tax standard in the upcoming months.


More shareholders will likely demand that businesses adopt stricter tax transparency standards, according to Katie Hepworth, responsible tax lead at Pensions & Investment Research Consultants in Sydney.


“PIRC is currently engaging with over 30 companies about their tax reporting, and our decision to support further proposals will depend on the outcomes of our engagements,” said Hepworth.


The GRI tax standard is a voluntary reporting framework that would inform shareholders of tax receipts in each nation in which the company conducts business. Effectively, this would make CbCR public on a voluntary basis, but long-lasting changes might only be made through legislation.

By fLEXI tEAM