Hungary plans crackdown on use of tax havens

The government of crisis-hit Hungary plans to crack down on the use of tax havens by imposing a tax on income transferred to Hungarian-owned companies abroad, a Hungarian news agency said yesterday.

The government wants to end the practice by Hungarian companies and entrepreneurs of transferring their profits to firms in countries with lower tax rates, government spokesman Domokos Szollar told MTI news agency.

"A 30-per cent withholding tax would be introduced on offshore income of Hungarian-owned companies in countries with which Hungary has no treaties on avoidance of double taxation," Mr Szollar was quoted as saying.

"One of the biggest problems of the Hungarian taxation system is that few people pay taxes, therefore taxing income hidden in tax havens is a viable tool (to increase tax revenue)", he said.

The plan is part of the government's tax package for 2010, which the Parliament is scheduled to vote on next month and is aimed at reviving the struggling economy.

The Parliament already passed last week a new tax Bill for this year as a first step in a severe austerity programme championed by Prime Minister Gordon Bajnai's new government.

His predecessor, Ferenc Gyurcsany, resigned in March, having failed to pass his own belt-tightening plan. Mr Bajnai's measures aim to reduce government spending so as to keep the public deficit under three percent of total economic output while getting the economy back on track after its worst slump since the 1930s.

In 2009, the government forecasts the economy to shrink by 6.7 per cent, with modest growth expected only in 2011.

Hungary has been hit hard by the global economic crisis, only averting a financial meltdown with a massive bailout package from international financial organisations in October.