On 8 July 2022, the U.S. Treasury Department announced the termination of the double taxation treaty with Hungary concluded in 1979. The termination is effective from 1 January 2024.
According to the experts, the motive behind the termination is Hungary’s position on the global minimum tax, which is strongly opposed by the Hungarian government. The absence of any double tax treaty could potentially lead to increased tax burdens and administrative difficulties for both countries’ taxpayers. The termination of the double-tax treaty will affect US investors in Hungary less than Hungarian investors in the US due to high withholding taxes in the US. The tax effects of each international transaction will have to be established in parallel according to the domestic laws of both contracting states.
However, there is a pending procedure regarding a new double tax treaty between the parties which might be applicable after the termination of the old one. The new double tax treaty was concluded between the parties in 2010, however, it has not yet been ratified by the United States Senate and thus has not entered into force. It may give some hope that the two states still have 1.5 years to smooth out their differences.
By Krisztian Kiralyvolgyi, Attorney at Law, KCG Partners Law Firm
