US And Hungary Agree To Prevent Tax Treaty Abuse

by Ulrika Lomas, Tax-News.com, Brussels

10 June 2009

The US Department of the Treasury has announced the conclusion of the negotiation of a proposed new bilateral income tax treaty with Hungary.

The proposed treaty modernizes the tax treaty relationship between the United States and Hungary and includes a comprehensive limitation on benefits provision that aims to ensure that only “bona fide” residents of the United States and Hungary enjoy the benefits of the treaty.

Official signing of the treaty is expected in the next few weeks.

According to the Treasury’s statement announcing the conclusion of the talks, the new treaty forms part of Obama administration's “aggressive efforts to enforce US tax laws and create a tax code that is more fair.”

“In recent weeks, the administration has demonstrated its commitment to closing the tax gap. At the G-20 leaders' summit, the US led efforts to ensure that all countries adhere to international standards for exchange of tax information,” the department stated.

The announcement also gave mention to the “detailed reform agenda” contained in the administration’s 2010 budget to reduce the amount of taxes lost through “unintended loopholes” and the use of “hidden accounts by well-off individuals.”

“The IRS is already engaged in significant efforts to track down and collect taxes from individuals illegally hiding income overseas,” the Treasury stated in outlining the international tax reform proposals last month. “But to fully follow through on this effort, it will need new legal authorities.”

These authorities would enhance information reporting, increase tax withholding, strengthen penalties, and create a new legal presumption shifting the burden of proof onto the individual when accused of tax evasion.

The Treasury Department recently concluded Gibraltar's first-ever tax information exchange agreement and also signed an agreement with Luxembourg to provide for greater exchange of tax information.

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