- 8 Aug 2023 1:37 PM
- Diplomacy & Trade Hungary
Hungary is a tax haven for companies, but the wealthiest have saved nearly 5% of domestic GDP, according to a recent report by the Tax Justice Network analyzed by the financial news site portfolio.hu.
The analysis underlines that the Organization for Economic Cooperation and Development (OECD) monitors tax enforcement. This has created a global system that favors the wealthier countries, rather than a more equitable international environment.
That is why it is proposed that the United Nations should take over tax oversight responsibilities.
Cross-border corporate tax abuse remains the largest component of global tax losses. It is also something that is the result of the damaging tax competition of recent decades: most states have bid against each other to reduce corporate and profit tax rates in order to lure more and more companies under their tax jurisdiction.
This is how Hungary, with a nominal tax rate of 9% – but an effective tax rate of around 5% – became a tax haven.
That is why it is an important step forward that, under the OECD, the largest multinationals with consolidated group-wide turnover of EUR 750 million can no longer be taxed at less than 15%. And if a subsidiary in one place is not subject to at least this rate, it will be subject to a top-up tax in its home country.
The report underlines that higher income countries are responsible for 99.3% of all taxes lost to corporate tax abuse worldwide, although many of them also suffer losses, while lower income countries are responsible for only 0.7% of losses. Hungary suffers quite brutal losses.
Although Hungary can be considered a tax haven with a nominal corporate tax rate of 9%, it is still a big loser overall from tax avoidance by companies with aggressive tax planning and wealthier individuals. The result is that Hungary receives some USD 1,137 million in profit shifting due to the low tax rate.
But even this cannot offset the fact that, according to Tax Justice Network calculations, USD 3,502 million of profits have been shifted outwards by multinational companies operating here.
The outflow of profits represents items generated in Hungary but shifted outside the country to tax havens or other jurisdictions with lower tax rates, allowing companies to reduce their tax liabilities.
Annual tax losses due to corporate tax abuse amount to USD 315.2 million – HUF 110.5 billion – per year. More precisely, this amount represents the tax revenue that the Hungarian government is unable to collect due to profit shifting and other tax avoidance practices by multinational companies.
This amounts to 0.2% of the Hungarian GDP.