Global minimum tax: uncertainty and U.S. withdrawal

The global minimum tax initiative aims to ensure that large multinational corporations operating across multiple jurisdictions pay a corporate tax rate of at least 15%. This measure was deemed necessary to curb tax avoidance strategies where corporations shifted profits to low-tax jurisdictions, exploiting disparities in corporate tax rates worldwide and strategically managing their profit reporting. Spearheaded by the Organization for Economic Co-operation and Development (OECD), this fiscal reform is projected to generate up to €192 billion in additional annual revenue.

As of mid-January 2025, over 130 countries had committed to implementing the global minimum tax on multinational profits. However, in a brief memorandum signed on his inauguration day, January 20, U.S. President Donald Trump directed the Secretary of the Treasury to initiate the withdrawal of the United States from the global tax agreement within 60 days.

This decision introduces significant uncertainty in international tax policy. The effectiveness of the global tax framework is highly dependent on U.S. participation, given that a substantial number of the affected multinational corporations are American. The U.S. appears to anticipate that other nations will refrain from enforcing the global minimum tax rules and will instead continue to adhere to existing bilateral double tax treaties. It remains unclear what sanctions, if any, will be imposed on countries that resist the new U.S. protectionist stance, but the Secretary of the Treasury has been tasked with drafting a list of the most effective countermeasures.

As of 1 January 2024, the international treaty on the avoidance of double taxation between Hungary and the United States expired. This imposes a significant financial burden on both US companies that have a permanent establishment in Hungary and Hungarian citizens who work for US companies. It is no coincidence that last week the Hungarian prime minister’s resolution was published in the Hungarian Official Gazette, in which he authorized the Minister of National Economy to conclude a new agreement with the US on avoiding double taxation and preventing tax evasion.

It is important to note that a previous, modernized double taxation treaty was signed between Hungary and the United States on 4 February 2010. However, as an international treaty, it required ratification by both parties under their respective domestic legal frameworks. While Hungary ratified the agreement in 2010, the U.S. approval process, which involves a preparatory committee, Congress, and the Senate, has stalled for over 15 years, preventing its implementation.

Given these precedents, even if the new U.S. administration endorses the renewal of the convention, the processes of signature, ratification, and eventual enforcement could take several years.