European Central: Poland Resists Minimum Global Corporate Tax Rate

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Companies attempting to avoid taxes by shopping around for jurisdictions with the lowest tax rates is nothing new. However, countries have been working for years in order to come up with an agreement that would make companies pay taxes where they operate and not solely based on where their headquarters are located, which is how the system currently functions. All countries part of the deal would have a minimum corporate tax rate of 15 percent. The tax plan consists of two pillars. The first pillar would apply to companies with an annual revenue of 20 billion euros or more and a profit margin of 10 percent or higher. The companies that would fall into this pillar would pay tax on up to 25 percent of their profits above the 10 percent profit margin in countries where they have sales. The second pillar would apply to companies with an annual revenue of 750 million euros or more. This pillar would allow countries to raise the corporate tax to the minimum rate of 15 percent. Under this pillar, it will also be decided when countries' foreign income counts as the parent company's income.

Within the European Union, there has been an attempt to pass the tax plan within the bloc but any changes to tax agreements at the bloc level need to be approved off unanimously. Originally three other countries were blocking the tax agreement with Poland. Estonia, Latvia, and Malta each were originally against the EU tax agreement but have all agreed. Janet Yellen, United States Secretary of the Treasury, visited Poland in an attempt to get the Polish government to agree to a deal but was unsuccessful. If passed, the tax plan is expected to bring in an additional 48 billion euros in tax revenue to the EU, and 2 billion euros to Poland annually. There is also frustration over Poland’s veto of the plan as Poland previously supported the plan when it was being discussed amongst members of the OECD (Organization for Economic Cooperation and Development).

Besides the struggle of getting Poland to agree, countries also need to consider that around the world there may be challenges to getting the legislation passed in each nation that has originally agreed. While Janet Yellen approves of the plan, Congress has been stalling on the legislation. Logically, countries may be hesitant to take action to enact the tax plans as they want to make sure that other countries that pledged to participate in the plan are serious about following through.

It appears Poland is partially motivated to reject the tax plan in the European Union based on disputes between the two. Poland has been at odds with the blocs over numerous issues from continuing to operate the Turów coal mine despite receiving an order to stop from the European Court of Justice and a daily fine of a million euros to judicial reforms that the bloc demands be changed in order to continue to receive financial support. Polish Justice Minister Zbigniew Ziobro also has a habit of threatening to veto anything that requires unanimous approval by the member states. One of the key examples was Ziobro threatening to veto the EU budget in late 2021 if the bloc stopped sending funds to the member state over the rule of law dispute. Poland's deputy funds and regional policy minister, Waldemar Buda is also threatening that Poland will veto various projects the bloc is planning if the EU refuses to approve Poland’s National Recovery Plan. Each member state has the right to have a National Recovery Plan to receive grants and loans from the bloc to help deal with the financial difficulties caused by the pandemic, but Poland has not received approval yet over demands that Poland repeals judicial reforms it made.  

However, Poland is not just resistant to the plan as an attempt to get revenge on the European Union. It is clear there is concern that raising the corporate tax may make Poland a less unattractive location for companies to relocate. Magdalena Rzeczkowska, the finance minister of Poland also argued that the EU tax plan needs to ensure reforms for the largest 100 companies in the world are actually implemented. Polish politicians are also not convinced the tax plan will be carried out in a way to effectively tax companies properly. There are concerns that large tech companies that should fall under the first pillow will find a way to evade paying the tax they should.

While Poland’s intentions for vetoing the European Union’s tax plan may not all be coming from the best place the EU does need to be careful about how it goes about the tax plan. The EU is eager to increase tax revenue but it has to ensure that companies will not find a loophole to evade taxes as they have successfully done for years.