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U.S. Termination of 1979 Income Tax Treaty with Hungary

On July 8, the U.S. Treasury Department provided notice to Hungary that it is terminating the U.S.-Hungary income tax treaty, first enacted in 1979. The Treasury explained this action citing long-standing concerns with Hungary’s tax system and the tax treaty. “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.”

An analysis performed by the Treasury 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. The treaty termination will apply to payments of U.S.-source dividends, interest, and royalties for payments made on or after January 1, 2024.

U.S. Termination of 1979 Income Tax Treaty with Hungary

It’s important to note that an updated treaty between the U.S. and Hungary, which had been agreed upon by both countries, has been pending in the U.S. Senate since 2010. However, with the termination of the existing treaty, the fate of the updated treaty remains uncertain.

In conclusion, the termination of the tax treaty between the U.S. and Hungary will have implications for individual taxpayers, potentially leading to double taxation and higher international assignment costs. This decision underscores the broader complexities surrounding global tax policies and international agreements.

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This document contains general information only and is not a substitute for accounting, tax, or any other professional advice or services. The information provided is considered accurate at the time of publishing and will not be updated with new regulation requirements.

Comply Connect May 2024 – Issue 11

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