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Hungary under international pressure to back corporate tax deal
Giles Gibson in Budapest
Europe;Budapest, Hungary

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The Hungarian government is under increasing international pressure to raise its corporate tax rate. 

In addition to calls from the European Commission to stop blocking action at the EU level, the U.S. has also announced it will end a tax treaty with Hungary if it continues to hold out.

Last year, Hungary signed up to an international deal brokered by the OECD to establish a minimum corporate tax rate of 15 percent. It was designed to ensure that major corporations and tech giants pay their fair share.

Hungary's Foreign Minister Péter Szijjarto with the country's Prime Minister Viktor Orban. /Reuters

Hungary's Foreign Minister Péter Szijjarto with the country's Prime Minister Viktor Orban. /Reuters

However, the country's foreign minister, Peter Szijjarto now insists that with war raging in Ukraine and soaring inflation across the continent, "Europe is in deep enough trouble without the global minimum tax."

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Every member country needs to be on board to raise tax rates across the EU. Unless Hungary relents, the bloc will be unable to meet its commitments under the global deal.

 

"A small and unique market"

Countries traditionally use low taxes to attract big corporations, talent and foreign investment. At just 9 percent, Hungary has the lowest corporate tax rate in the entire EU.

"Hungary is kind of a small and unique market, so usually it's not the first international expansion choice, I would say for companies," said Mary Alcantara, head of startups at MKB Fintechlab, which is trying to attract top talent in the financial technology sector to Hungary. 

"We have a lot of Hungarian startups here though, that grow and get traction here at home and then can expand to the region."

 

Right-wing parties cooperate 

While the U.S. government and the EU ramp up pressure for Hungary to rejoin the international tax deal, Hungary's right-wing government has found support for its stance in other places. 

Foreign Minister Szijjarto recently claimed his government is consulting with Republicans in the U.S. to undermine the plan, which is a major priority for Democrat U.S. President Joe Biden. 

U.S. President Joe Biden has been leading international efforts to establish a minimum corporate tax rate. /Reuters

U.S. President Joe Biden has been leading international efforts to establish a minimum corporate tax rate. /Reuters

It's the latest sign of right-wing parties working together across borders. Hungary recently hosted an international version of the Conservative Political Action Conference (CPAC) in central Budapest. 

Hungary's Prime Minister Viktor Orban spoke alongside several high-profile conservatives from the U.S. He has also been invited to speak at the U.S. version of the gathering in Texas in August.
 

Stalemate between Brussels and Budapest 

While Hungary has some allies overseas for its stance on the minimum tax rate, it could be forced to come to the negotiating table with the EU over a series of issues. 

The European Commission is holding back billions of euros in COVID-19 relief funds in a dispute over the rule of law, and the Hungarian government is already having to tighten its belt. 

"After the first quarter spending, the government decided, taking into consideration the latest developments in global markets especially with the energy crisis and higher commodity prices… to create an austerity package," said Peter Virovacz, a Senior Economist at ING in Budapest. 

Hungary's currency, the Forint, has hit record lows against the U.S. Dollar and Euro recently. /Reuters

Hungary's currency, the Forint, has hit record lows against the U.S. Dollar and Euro recently. /Reuters

For now it's a stalemate between Brussels and Budapest. However, with Hungary's currency sliding against the Euro, the government urgently needs to unlock those emergency EU funds.

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