Exchange of information on tax issues between Hungary and the USA

Representatives of Hungary and the United States of America initialed an agreement to improve international tax compliance and assist the implementation of FATCA regulations.

According to the initialed version of the agreement, the data compiled from financial institutions will be forwarded to the tax authority of the US and information will also be received by the relevant authority of the country instead of the financial institutions involved. With the initialing of the agreement the phase of professional negotiations has been finalized and the document will be signed officially after the treaty has been endorsed by the Government.

Every country – among them Hungary — and several international organizations have recently placed special emphasis on combating international tax evasion and fraud. Among the measures introduced and initiated which are aimed to counter spreading tax abuse there are several solutions which Hungary intends to apply.

On the basis of the regulation based on the automatic exchange of information enacted by the USA which is designed to combat international tax evasion (Foreign Account Tax Compliance Act or FATCA), payments to financial institutions which do not provide information on the accounts held by United States citizens are subject to withholding tax of 30 percent.

Hungary also considers the combating of international tax fraud and evasion a prioritized issue, as it is a field which has been gaining importance and requiring apt responses. Hungary concurs with the objectives of the efforts exerted by the USA, as these aim to establish automatic exchange of information and greater tax transparency.

In order to ease the large financial and administrative burden of Hungarian economic stakeholders caused by the required data service which the government of the USA prescribes and as the compliance of financial institutions with FATCA may breach national regulation, the Government – along with the majority of European countries – adopted the legal viewpoint that FATCA objectives are attainable also through an automatic exchange of information between the relevant tax authorities.

Provided the treaty is signed, the relevant tax authority of a country is obliged to forward – in accordance with the automatic exchange of information scheme — data reported by financial institutions to the USA tax office and it would also be the body to receive such information.

With regard to this issue, every EU state had by now been engaged in negotiations with the United States of America, and several treaties have already been concluded or are under discussion on the basis of a model agreement provided by the USA which is currently conducting dialogues with some 100 countries.

As far as Hungary is concerned, negotiations have been going on since November 2012 in harmony with the Model 1 framework which assumes on a mutual approach. Hungarian regulation stipulating the exchange of data will be implemented after the promulgation of the treaty which is currently awaiting adoption.

(Source:  Ministry for National Economy)

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