BRUSSELS — Baltic countries are leading a push to water down a global minimum tax deal after U.S. President Donald Trump pulled back his support.
Criticism of the initiative to undermine tax havens around the world came to a head during a meeting of EU finance ministers in Brussels on Thursday.
Several small countries from Eastern Europe — including Hungary, Slovakia and the Baltic states — expressed fears that the new rules will add red tape and undermine Europe’s competitiveness vis-à-vis the U.S.
Washington’s demand in June for a carve-out from the new system has reignited concerns that the new rules will make Europe less attractive for investors — and further widen the economic gap with the U.S.
The U.S. exemption, however, is not a done deal as the Trump administration must prove that it will not undercut the Organization for Economic Cooperation and Development’s 15 percent minimum tax rate for multinationals.
But European critics of the global tax agreement are using the development as a reason to demand a reprieve for themselves.
“We are losing competitiveness if [the system is] mandatory and not voluntary,” Estonian Finance Minister Jürgen Ligi said in an interview with POLITICO.
“The situation clearly has changed. In practice, they feel that the burden is unnecessary,” Ligi added, referring to criticism from the other countries.
Estonia said it wants to continue complying with the OECD’s global minimum tax of 15 percent for multinationals, but demanded a carve-out from the onerous reporting requirements that are associated with it.
As low-tax countries with business-friendly agendas, the Baltic states have traditionally been among the most vocal critics of the tax deal brokered by the OECD in 2021 to create a more fair global tax system.
Estonia is one of five countries — the others being Latvia, Lithuania, Slovakia and Malta — that previously secured a delay until 2030 to implement the OECD directive in their national legislations.
In view of the developments in the U.S., Lithuanian Finance Minister Kristupas Vaitiekūnas didn’t rule out asking the European Commission for another extension to implement the deal.
“We want to keep our advantages, we don’t want to give them away,” Vaitiekūnas told POLITICO on Wednesday.
Critics have argued that the new system entails too much regulation and offers scant benefits to countries that host few big multinationals that fall within the scope of the system.
“We’re not sure whether the revenues will be bigger than the costs,” said Estonia’s Ligi.
These arguments, however, have not resonated with bigger Western European countries such as France, Italy and Spain that support the OECD framework.
“There is no reason to question [Pillar 2] when it is a major achievement in international tax cooperation,” a French economy ministry official told reporters earlier this week.
“They [the critics] are saying: if the U.S. wants special treatment, then I also need special treatment,” an EU diplomat said Wednesday.
“It is essential to ensure predictability and stability for businesses, and to make full use of Pillar 2 to ensure a fair taxation of multinationals,” the EU’s tax commissioner, Wopke Hoekstra, wrote in a statement on Thursday.
At the same time, he added, the EU “will not take any action that would put European businesses at a disadvantage.”
