In response to Budapest’s decision to obstruct the implementation of a new, 15 percent global minimum tax by the European Union, the U.S. Treasury announced on Friday that it was moving to dissolve a 1979 tax treaty with Hungary.
The United States has terminated its double taxation avoidance agreement with Hungary that was signed 43 years ago, Minister of Foreign Affairs and Trade Péter Szijjártó said on Facebook on Saturday.
According to a U.S. Treasury official, Hungary gains solely from the tax agreement since it cut their corporation tax rate to 9 percent, which is less than half the U.S. curent rate of 21 percent.
The timing of the termination, which came after years of U.S. reservations about the agreement, shows that Treasury is attempting to exert pressure on the Hungarian government to adopt the 15 percent global minimum tax that over 140 nations have committed to, Reuters reports.
This is also what Hungary believes is happening, as Foreign Minister Péter Szijjártó said that in reaction to the announcement “the reason for the step is clear: Hungary is opposed to the introduction of the global minimum corporate tax rate and the resulting tax increases.”
Szijjártó added that the “European economy needs to operate in a long-term wartime inflation environment, he argued. If the tax burden of producing companies is increased further amid these circumstances, the effect will be “dramatic.”
Europe’s competitiveness is “in ruins” because of runaway energy prices, and the introduction of a global minimum corporate tax rate would be the “coup de grace,” he warned.
He said Hungarians have worked hard to make the country’s taxes the lowest in Europe, adding that introducing the global minimum corporate tax rate would “practically double” the tax burden of Hungarian producers, putting “tens of thousands” of local workplaces at risk.
“We will continue professional consultations on tax matters with our Republican friends,” Szijjártó added.
Following formal notification to Hungarian authorities from the U.S. Treasury, the treaty termination is anticipated to be finished in six months.
US seeks to ‘pressure’ Hungary, says finance minister
Later, in an interview, Finance Minister Mihály Varga told MTI that the United States wants to “pressure” Hungary to change its position on the global minimum corporate tax by terminating its double taxation avoidance agreement with the country.
Varga said on Sunday that the decision by the US president “came as no surprise,” adding that US Treasury Secretary Janet Yellen had already warned him by phone after a meeting of EU finance ministers in June, that the double taxation avoidance agreement between the two countries could be cancelled if Hungary didn’t change its position.
According to the minister, the government believes the “real reason” the agreement was cancelled is not the official explanation involving tax policy and technical reasons, but that Hungary has “stood up for its own long-term interests and those of the European Union.”
Varga noted that Hungary had ratified a new version of the double taxation avoidance agreement in 2010 that addressed all of the concerns the Americans now raised.
He stressed that introducing the global minimum corporate tax is “unjustified” in a wartime situation amid runaway energy prices.
He said introducing the global minimum corporate tax would hurt competitiveness and put jobs at risk, adding that a number of countries are not making any preparations to adopt the minimum tax.
He also pointed out that talks on the minimum tax fail to address taxation of digital multinationals, which were initially targeted by the measure.
If the government were to accept the proposed global minimum corporate tax, Hungary’s corporate tax rate would rise from 9 percent to 15 percent, “which would not help local businesses,” Varga emphasized.
The Finance Minister said the double taxation avoidance agreement with the US isn’t a “prerequisite” for strong economic ties between the two countries.
However, “We find it strange that the United states would terminate the tax agreement with Hungary, but not the one with Russia, for example,” Varga underscored.
Source: MTI, Reuters
In the featured photo: Minister of Foreign Affairs and Trade Péter Szijjártó. Photo via Szijjártó’s Facebook page
