from Activist Post:
In response to Hungary’s obstruction of the European Union’s adoption of a 15% global minimum tax on corporate income, the Biden administration on Friday announced it will terminate a 43-year-old tax treaty with the country.
Hungary blocked the EU’s finalization of the 15% minimum tax scheme in June. Over the past dozen years, Hungary has slashed its corporate tax rate from 19% to just 9%.
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In October 2020, 136 countries of the Organisation for Economic Co-operation and Development (OECD)—together representing more than 90% of the world’s GDP—agreed to move forward with the tax plan. Making it an actual reality, however, requires countries and economic blocs to pass legislation.
At the time of Hungary’s veto, the country’s finance minister, Mihaly Varga, hinted that Budapest could still be persuaded: “The work is not ready. I think we have to continue the effort to find a solution.”
That could be a veiled reference to something else entirely that Hungarian Prime Minister Viktor Orban is seeking: billions of dollars in loans and grants from the EU’s Covid-19 recovery fund.
Budapest had originally requested 7.2 billion Euros in grants; after the Russian invasion of Ukraine, Hungary said it would seek low-interest loans, too. Approval stalled over EU concerns that Hungary lacks safeguards against corruption as the money is disbursed.
Poland had likewise opposed the adoption of the 15% minimum tax—that is, until the EU agreed to shell out almost 38 billion Euros in pandemic recovery loans and grants that was similarly delayed.
Barring a change of course, the U.S. exit from the tax treaty with Hungary will happen in six months. The move puts new pressure on the last EU holdout.
Tax treaties smooth international business by easing tax administration across borders. “Turning off a tax treaty is a big deal and would be damaging to business arrangements between the U.S. and Hungary,” Tax Foundation executive vice president Daniel Bunn tells The Wall Street Journal.
In 2010, the United States and Hungary agreed to update the treaty so it would be less ripe for so-called “treaty-shopping,” by which corporations and other taxpayers can take advantage of varying details in treaties to lower their tax burden.