In late March, the European Parliament indicated Hungary, along with six other European countries, has some traits associated with a tax haven. This came from the parliament’s Special Committee on Tax Avoidance, Tax Evasion, and Financial Crime.
Hungary has a 7.5-percent tax rate that applies to multinational companies. This places it ahead of jurisdictions commonly referred to as tax havens, including Malta, Cyprus, and Ireland.
What the Parliament Said
The announcement regarding Hungary and other European countries coincides with the European Parliament’s outlining some common issues. Specifically, the co-rapporteur of the Parliament, Jeppe Kofod, stated that Europe has a major issue with tax fraud and money laundering. Kofod indicated that Europe is the biggest, most integrated, and richest single market that has free movement for capital. Despite this, there is almost no cross-border supervision of an effective nature. This is further complicated by the fact that 28 different nations each have their own anti-tax-fraud and anti-money-laundering provisions.
Building from Last Year’s Reports
The European Parliament’s statements about Hungary’s tax-haven-like traits are nothing new. Last year, the Parliament reported that the country still experiences related issues despite having taken numerous measures to improve its tax system.
The Parliament reported that there are medium-term fiscal risks associated with tax cuts if Hungary does not take mitigating steps. Furthermore, it indicated that the tax wedge associated with labor has been reduced but is still not low enough for some low-income groups, particularly compared with other EU countries. There are also acknowledged administrative burdens associated with tax collection, despite Hungary making efforts to resolve the issue.
At the moment, there remain indicators that multinational corporations wanting to engage in aggressive tax planning via offshore finances could tax advantage of Hungary’s tax rules.
Hungary Is Not Alone
As mentioned, the European Parliament found that a total of seven member countries show tax haven traits. In addition to Hungary, these include Cyprus, Belgium, Ireland, Malta, Luxembourg, and the Netherlands. All of these countries show the traits associated with tax havens and make it easier for companies and individuals to engage in aggressive tax planning.
The report from the European Parliament’s committee was seen as an effort to encourage other European Union institutions to put pressure on these countries to make adjustments that reduce their tax haven traits. Even so, the EU Council and European Commission have not acknowledged these member states as tax havens.
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