20/07/22

INTERNATIONAL TAX: Blinken threatened Hungary treaty over tax dispute, foreign minister says.

As published on washingtonexaminer.com, Wednesday 20 July, 2022.

Hungary’s foreign minister said Secretary of State Antony Blinken used the U.S. tax treaty with Hungary as leverage in negotiations about the adoption of a corporate minimum tax.

The Treasury Department announced earlier this month that it is terminating its tax treaty with Hungary, a move decried by Republicans as retaliation for Hungary opposing the European Union plan, favored by the Biden administration, to adopt a 15% corporate minimum tax.

The Biden administration has steered clear of saying that it canceled the deal to pressure Hungary, but Hungarian Foreign Minister Peter Szijjarto said Wednesday that Blinken had threatened to pull the treaty over Hungary's veto of the tax plan.

“When I had conversations with your secretary of state, he was fair because he made it very clear that might be among the consequences. And basically, they delivered,” Szijjarto said in an address to the conservative low-tax advocacy group Americans for Tax Reform in Washington, D.C.

Szijjarto said his government has no intentions of backing down on its opposition to the global minimum tax promoted by Treasury Secretary Janet Yellen, essentially assuring it will not come to be.

He made it clear that the Hungarian government, under the leadership of President Viktor Orban, would not agree to any negotiations with the EU that would see the country raise corporate taxes.

“What I can tell you is that as long as we are in office in Hungary, we will definitely not support any tax burden to be increased on labor and on production, so we will definitely go against the global minimum tax in the future,” Szijjarto said.

A State Department spokesperson told the Washington Examiner, "We have had long-held concerns with Hungary’s tax system and the bilateral tax treaty. Hungary’s failure to support the EU Directive is related in that it makes those concerns worse."

The spokesperson said Hungary's low corporate tax rate of 9% — the U.S. rate is 21% — is a cause for concern regarding the treaty and that the problem would be ameliorated with a global minimum tax.

Szijjarto is in the United States this week to meet with business leaders and political figures.

Hungary has been a headache for the Biden administration, as it is the last holdout in the EU’s plan to agree to a corporate minimum tax. 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 last month that it is not ready to move forward with the plan. Because the EU requires unanimity among all member countries to change EU tax policy, Hungary’s veto effectively blocks the measure from moving forward.

Szijjarto said the reason why Biden and administration officials didn’t want Hungary to veto the global minimum plan was that it would make it more difficult for the U.S. to pass its own minimum tax legislation.

“As it was said to me, if the European train is getting stuck, it’s going to make the American train [get] stuck as well,” Szijjarto said. “So I hope we were successful in this regard, making the European train stuck.”

Szijjarto said Hungary is hoping for Republicans to take control of Congress in the November midterm elections because it could offer some hope in stopping the trade agreement’s termination.

“I have nothing more than to say that [we] really cross fingers for a positive outcome of the midterms, which, hopefully, will end up in turning around the termination of the bilateral tax treaty between our two wonderful countries as well,” Szijjarto said.

Some GOP politicians 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.”

While in town, Szijjarto met with the companies represented by the U.S.-Hungary Business Council and is planning to meet with Republican lawmakers.

In response to a question from the Washington Examiner, the foreign minister said he will be meeting with two GOP senators and five members of Congress in various committees related to taxation, financial services, and trade.

He said the lawmakers he is meeting this week have “openly stood beside” Hungary after the veto, and he hopes to discuss how to reverse the termination of the trade treaty.

Biden and Yellen have pushed for the global minimum tax as a way to reverse the “race to the bottom” in corporate taxation, which features different countries lowering their tax rates to attract international businesses to compete with other low-tax nations.

“The global minimum tax would also help the global economy thrive, by leveling the playing field for businesses and encouraging countries to compete on positive bases, such as educating and training our workforces and investing in research and development and infrastructure,” Yellen said last year.

During his Wednesday remarks to Americans for Tax Reform, which is led by Grover Norquist, Szijjarto also addressed the war in Ukraine, which is taking a toll on the European economy because of heavy Western sanctions levied against Moscow.

Szijjarto said the “major obligation” of the Hungarian government is to mitigate the negative effects of the war in Ukraine on his country. He said that his government doesn’t want to see Hungarians forced to pay the price for the conflict and noted that his country has introduced price caps in order to keep energy and food costs under control.