The Treasury Department announced that it is terminating its tax treaty with Hungary, the sole European Union member that has defied U.S. and EU calls to agree to a global corporate minimum tax.
The move was announced on Friday, with the Treasury asserting that the treaty in its current iteration offers little return for U.S. business and investment in Hungary and that the tax benefits are no longer reciprocal.
“The United States, across administrations, has had long-held concerns with Hungary’s tax system and the Hungary treaty,” a Treasury spokesperson said in a statement provided to the Washington Examiner. “We discussed these concerns with Hungary starting last fall, but are taking this step due to a lack of satisfactory action by Hungary to remedy these concerns.”
Hungary has been a source of tension in the Biden administration, as it is the last holdout in the EU’s plan to agree to a 15% corporate minimum tax, a move that is part of a broader aim of President Joe Biden and Treasury Secretary Janet Yellen to adopt a global minimum tax.
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The proposal was agreed to last October by nearly 140 countries, but implementation requires each country, or bloc of countries in the case of the EU, to codify it individually.
Hungary said it is not ready to move forward with the plan on Friday. Because the EU requires unanimity among all member countries to change EU tax policy, Hungary’s veto effectively blocks the measure from moving forward.
Asked for comment, the Hungarian Embassy in Washington, D.C., told the Washington Examiner that “our Embassy will discuss it with Budapest, I would ask for your patience.”
The tax treaty between Washington and Budapest has been in place since 1979 and is designed to ease tax administration, but the Treasury Department asserts that circumstances have changed since then because when the treaty was inked, Hungary and the United States had comparable corporate tax rates.
Treasury analysis found that the treaty’s benefits now just unilaterally benefit Hungary. The U.S. is in the process of sending over the notice of treaty termination, after which the treaty will be ended following a six-month period.
Some U.S. lawmakers who are opposed to the administration’s global minimum tax plan have praised Hungary for pushing back against the effort.
“As Hungary acknowledges, punishing workers and businesses with a global minimum tax would be a counterproductive step for economic growth around the globe,” Sen. Pat Toomey (R-PA) said last month after Budapest announced it was vetoing the deal. “It would be a profound mistake for the United States to adopt this global tax increase, as it makes our workers and businesses less competitive.”
Some analysts believe that Hungary is only stonewalling the plan in order to exact concessions from the EU.
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Poland had previously opposed the 15% minimum tax, but officials later changed their mind after the European Commission agreed on a conditional basis to pay out nearly $38 billion in pandemic recovery grants and loans.
Despite claims that Hungary is also out to leverage the deal, Hungarian officials have asserted that is not the case and that they are simply concerned it will hurt EU competitiveness, especially in a time of war in Ukraine and sanctions against Russia.
