Background
On 8 July 2022, the US Department of the Treasury announced its decision to terminate the tax treaty with Hungary. In respect to taxes related to transferable securities, and where those taxes are withheld at source, the treaty will no longer be in force from 1 January 2024.
Tax impact
Hungarian residents who enjoy tax treaty relief on US source income will no longer be able to access the lower treaty rate for US source income paid on or after 1 January 2024, and as such the statutory withholding tax rate of 30% will apply.
On or around 1 January 2024, Hungarian residents may see their US securities resettle from a 15% tax safekeeping account into a 30% tax safekeeping account. Furthermore, all US source income paid to Hungarian residents will be subject to 30% withholding tax.
The portfolio debt exemption will still apply, and holdings in ordinary US bonds will remain unaffected and will continue to enjoy 0% withholding tax.
Next update
Saxo will issue a further communication closer to the termination date or if there is a material change in circumstances.
Technical notes
The US Department of the Treasury decision to terminate the treaty is predicated on Hungary’s veto of the EU implementation of a global minimum corporate tax rate (Pillar 2 of the OECD’s Pillar 2 model rules). Given that EU directives require unanimous approval, Hungary’s rejection blocks the implementation across the entire EU. Owing to this, the US Treasury determined that the treaty was no longer reciprocal in nature and should be terminated.