Hungarian politicians react to US’ ending of tax treaty between two countries

The United States announced that it would scrap its 43-year-old tax treaty with Hungary after it emerged that Hungary is blocking the EU's plans to introduce a 15% global minimum tax, which has already been accepted by 140 countries.

The Hungarian parliament had accepted the proposed resolution for blocking the global minimum tax back in June – which was the reason why the US Treasury decided to terminate its agreement with Hungary dating back to 1979, originally created to avoid double taxation.

The spokesperson for the US Treasury justified their decision by pointing out that Hungary has reduced its corporate tax rate to 9 percent – which is less than half of the 21 percent US tax rate – as a result of which,

“the advantages of the tax treaty unilaterally benefit Hungary, with no benefit for the United States whatsoever. The US would also face a significant loss of revenue from maintaining the tax benefit.”

- the spokesperson said.

Hungarian reactions

Foreign Minister Péter Szijjártó reacted to the news on his social media page saying that "Europe's economy is now operating in a long-term inflationary environment due to the war in Ukraine. If the tax burden on production companies were to be further increased under these circumstances, the impact would be dramatic". He added that due to the skyrocketing energy prices, the competitiveness of European companies is already in ruins, and in his opinion the introduction of the global minimum tax would provide the final blow.

“The company tax of Hungarian production companies would practically double, which would threaten tens of thousands of Hungarian jobs. Due to this – no matter how much pressure is placed upon us – naturally, we will not support the introduction of the global minimum tax in Europe”.

- Szijjártó reacted.

“This is quite a petty move of a major power”

- was the comment of Gergely Gulyás, Minister at the Prime Minister’s Office at Kossuth Radió’s Sunday morning programme. He added that this is simply an attempt to put pressure on Hungary to accept the global minimum tax.

“The United States is powerful enough not to resort to using such petty ways of pressuring” – Gulyás said. He also explained that the agreement that replaced the 1979 agreement, which is now to be terminated, was signed by then Finance Minister Péter Oszkó and his US counterpart in 2010, but has not yet been approved by the US legislature.

The minister explained that the 2010 agreement would remedy all problems, but the US government instead intends to use this issue to exert pressure on Hungary. “The agreement being terminated will remain in effect until January 2024, so the Americans are clearly aiming to make us accept the global minimum tax within the next year and a half, and then they would be willing to ratify the 2010 agreement” – Gulyás pointed out.

The minister further said that according to the Hungarian viewpoint, in its current form the global minimum tax is only good for the United States, but it is bad for Europe, and it is the worst for the Central European countries. By accepting the agreement, we would lose the tax advantage that lower taxes in Hungary give us on international investment as well as foreign investment into Hungary, the Minister said.

Gergely Gulyás also said that the original goal with the global minimum tax – of taxing the big tech firms – is currently not part of the agreement. “So in reality, Hungary is representing the interests of Europe here” – he added.