The U.S. Treasury on Friday said it was moving to terminate a 1979 tax treaty with Hungary in the wake of Budapest’s decision to block the European Union’s implementation of a new, 15% global minimum tax.
A Treasury spokesperson said that since Hungary lowered its corporate tax rate to 9% – less than half the 21% U.S. rate – the tax treaty unilaterally benefits Hungary.
“The benefits are no longer reciprocal – with a significant loss of potential revenues to the United States and little in return for U.S. business and investment in Hungary.”
The timing of the termination following years of U.S. concerns about the treaty suggests that Treasury is using it to try to pressure Hungarian Prime Minister Viktor Orban to agree to implement the 15% global minimum tax agreed by nearly 140 countries.
Affirming the Hungarian government’s position, Foreign Minister Peter Szijjarto said that the global minimum tax would ruin Europe’s competitiveness and endanger jobs in Hungary.
“Based on all this – no matter how hard the pressure is on us – we obviously do not support the introduction of the global minimum tax in Europe,” he said in a Facebook post on Saturday. “And we continue our professional consultations on tax issues with our Republican friends.”
Termination of the treaty is expected to be completed in six months after the U.S. Treasury sends formal notification to Hungarian authorities.
“Hungary made the U.S. government’s longstanding concerns with the 1979 tax treaty worse by blocking the EU Directive to implement a global minimum tax,” the Treasury spokesperson said. “If Hungary implemented a global minimum tax, this treaty would be less one-sided. Refusing to do so could exacerbate Hungary’s status as a treaty-shopping jurisdiction, further disadvantaging the United States.”