On Friday (8 July), the US Treasury said that it would be terminating a 1979 tax agreement with Hungary. This was in response to Budapest’s blockade of the European Union’s implementation a global 15% minimum tax.
A Treasury spokesperson stated that because Hungary has lowered its corporate income tax rate to 9.9%, less than half of the 21% U.S. rate, the tax treaty benefits unilaterally for Hungary and not for the United States.
“The benefits of the agreement are no longer mutual – there is a substantial loss in potential revenue to the United States, and very little return on investment by U.S. businesses in Hungary.”
The timing of the termination, after years of U.S. concern about the treaty, suggests that Treasury is using the treaty to try and pressure Viktor Orban, the Hungarian Prime Minister to implement the 15% global minimum tax.
After the Treasury has sent a formal notification to Hungarian authorities, termination should be completed within six months.
The Treasury spokesperson stated that “Hungary made America’s long-standing concerns about the 1979 tax treaty worse” by blocking the EU Directive to establish a global minimum tax. This treaty would have less one-sided if Hungary had implemented a global tax minimum. Refusing to implement a global minimum tax could further exacerbate Hungary’s position as a treaty-shopping country, further disadvantageing the United States.
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