The fact that during the June 17th ECOFIN Council Hungary vetoed the proposed EU Pillar Two Directive seems to have really annoyd the Members of the European parliament (MEPs). In a resolution that was adopted on July 6, 2022 on national vetoes to undermine the global tax deal MEPs call for a relaunch of discussions to gradually introduce qualified majority voting.

Remarkably MEPs also reiterated their call on the European Council to swiftly adopt the Pillar II Directive to ensure that the agreement is effective by January 2023, whereas it seems that the 27 EU Member States previously came to an agreement that the Income IIR would come into effect in January 2024 (instead of 2023) and that the UTPR would only come into effect in January 2025 instead of January 2024.

Current decision-making process and impact of national vetoes

With respect to the Current decision-making process and impact of national vetoes a.o. the following is stated in the resolution:

“Reminds the Member States that unanimity as it appears in the Treaties must be counterbalanced by a very high level of responsibility and must be in line with the principle of sincere cooperation based on Article 4(3) TEU;

Stresses that unanimity voting in the Council over tax policy is not conducive to ushering in the changes needed to tackle the current challenges; regrets that the current situation often leads to delays and lack of progress in the harmonisation and coordination of tax rules across the Union that would be to the benefit of all;

Underlines that national vetoes have consistently hampered progress in many important areas of taxation; deplores the fact that proposals such as the Common Consolidated Corporate Tax Base (CCCTB), the revision of the Interest and Royalties Directive and the reform of the Code of Conduct on Business Taxation have remained blocked in the Council;

Condemns the fact that national vetoes in taxation matters have been abused by certain Member States to achieve concessions in other policy areas; stresses that the existence of these vetoes threatens to perpetuate harmful tax practices and social injustice that undermine the Union’s ability to function effectively, foster a level playing field and protect the best interests of its citizens and SMEs.”

Recommendations for action and areas for reform

MEPs make a.0. the following recommendations for action and areas for reform in the adopted resolution:

“Reiterates its call on the Council to swiftly adopt the Pillar II Directive to ensure the agreement is effective by January 2023;

Urges Hungary to put an immediate end to its blockage of the global tax deal in the Council; deplores the fact that a single Member State has the capacity to keep both the implementation of such a historic deal and 26 other Member States at a standstill;

Urges the Commission and the Council not to engage in political bargaining with Member States who abuse their national vetoes;

Reiterates its call on the Commission and the Council to insist on the agreed conditionality of EU policies and the transparency of decision-making and to refrain from approving the Hungarian national recovery and resilience plan until Hungary has fully complied with all criteria set out in the regulation, in particular with the country-specific recommendations in the field of the rule of law, the independence of the judiciary and the prevention and detection of and fight against fraud, conflicts of interest and corruption;

Stresses that all possible scenarios should remain on the table in the current context, and that swift action must be taken if Hungary persists with its national veto in the coming months; urges the Commission and the Council to explore alternative options to allow the EU to honour the commitments it has made at OECD/G20 level;

Calls on the Commission and the Member States to reflect on potential short-term measures to allow the EU to fulfil its international commitments, such as determining whether it would be appropriate, as a last resort, to implement the global tax deal through the enhanced cooperation procedure laid down in Article 20 TEU; considers, in case no other alternatives for EU-level implementation can be agreed upon, that unilateral implementation of the Pillar II Directive by all Member States would deliver acceptable results;

Calls on the Commission to make use of the procedure on certain tax policies laid down in Article 116 TFEU, if appropriate; recalls, in this regard, Ursula von der Leyen’s manifesto from her candidacy for President of the Commission, which included a commitment to ‘make use of the clauses in the Treaties that allow proposals on taxation to be adopted by co-decision and decided by qualified majority voting in the Council’;

Recalls former Commission President Jean-Claude Juncker’s 2018 state of the Union speech, which called for decisions to be taken by qualified majority for certain tax matters;

Stresses that, for the long term, Member States should consider the added value of transitioning to qualified majority voting, as recommended by the Conference on the Future of Europe; calls on the Commission, in this regard, to relaunch the discussion on the use of qualified majority voting in some tax matters through a phased approach, as a follow-up to its 2019 communication on the issue, and as a response to the outcome of the Conference on the Future of Europe.”

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