Hungary ratified the Multilateral Convention:
its double tax treaties with 74 countries may change

On 4 March 2021, by Act III of 2021 Hungary promulgated the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Tax Base Erosion and Profit Shifting, which opens a new chapter in international taxation.

In 2013, the Organisation for Economic Co-operation and Development (OECD) launched a programme to combat international tax evasion and avoidance known as the Base Erosion and Profit Shifting (BEPS) programme.

The recommendations of the BEPS programme should be transposed into existing double taxation treaties between countries by a new and effective legal instrument: the Multilateral Convention (Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting).

In the "notification" section of the Multilateral Convention, each State may indicate which of its tax conventions (double taxation treaties) it wishes to amend by the Multilateral Convention and which provisions of the Multilateral Convention it intends to apply. Only those bilateral tax treaties will be amended in this way where both contracting parties have mutually "flagged" each other.   

Hungary has nominated 74 conventions, which cover all states that have signed the Multilateral Convention before its ratification by Hungary, and have a double taxation treaty in force with Hungary.

Among the provisions of the Multilateral Convention, Hungary has only committed to the minimum standards (i.e. the updating the preamble of the relevant tax treaties, the elimination of opportunities for non-taxation or reduced taxation through tax evasion or avoidance, the more efficient dispute resolution through a mutual agreement procedure), as well as to the adoption of the transfer pricing adjustments and the introduction of arbitration. For all other provisions, Hungary has expressed reservations (reservations can be withdrawn at any time, but it will no longer be possible to enter a new reservation). Consequently, despite the changes to the relevant double taxation treaties, no significant changes in Hungary's international tax relations are expected for the time being.

At the same time, it is important that the applicability of the Multilateral Convention should now be taken into account when assessing international tax issues, rather than just the provisions of the double tax treaty with the country concerned. For each country, the Multilateral Convention applies from different dates, depending on the date of ratification by this country. However, it is assumed that by the end of 2021, all signatory countries will have brought the Multilateral Convention into force, so that by next year it will be applicable to all signatory countries.

***

Should you have any questions as regards the application of the double taxation treaties, the tax experts of VGD Hungary will be pleased to assist you.

This newsletter provides general information and does not constitute tax advice.