Nearly 5% of Hungary’s GDP was saved in offshore accounts

Tax havens are causing severe losses to countries’ budgets worldwide. Corporate tax avoidance practices cost a significant amount of lost revenue, but individuals’ offshore assets also cause tremendous losses. Hungary may be a tax haven for companies, but nearly five percent of the domestic GDP was moved to offshore accounts.

Portfolio reported that the State of Tax Justice 2023 has continued the tradition of collecting data and sharing statistics on companies and individuals committing tax fraud and escaping money on offshore accounts. According to statistics, the yearly tax loss is about USD 472 billion globally. Multinational corporations shift a lot of profit to tax havens each year. It is almost unbelievable that the loss of direct tax revenue to governments is higher than Hungary’s GDP.

Serious losses in Hungarian finances due to offshore

The study made by the State of Tax Justice 2023 highlights the fact that higher-income countries are responsible for 99.3 percent of all taxes lost to corporate tax abuse worldwide, although many of them also suffer losses. Therefore, lower-income countries are responsible for only 0.7 percent of losses. You might be surprised to learn that Hungary suffers quite brutal losses too. Hungary might be a tax haven with a nominal corporate tax rate of 9 percent, but it is still a victim of aggressive tax planning and tax avoidance of companies and wealthy individuals.

The country receives about USD 1137 million in profit shifting due to the low tax rate. However, the profit shifted from the country is much higher, roughly USD 3502 million. Therefore, it is a major annual tax loss. Globally, corporate tax abuse in Hungary accounts for 0.1 percent of the total global tax loss caused by multinational companies. The percentage might not be high, but Hungary still adds to this global problem.

The wealthiest Hungarians

Offshore assets are financial assets such as bank accounts, investments, and real estate held in foreign jurisdictions with favourable tax and regulatory environments. According to the calculations, Hungarian citizens have offshore assets worth USD 7.7 billion, roughly HUF 2765 billion. It is especially alarming that offshore assets owned by Hungarian citizens account for 4.7 percent of Hungary’s gross domestic product. This indicates the significant value of offshore financial wealth relative to the country’s economic performance. If these offshore assets were to be taxed in Hungary, the government would have acquired a tax revenue of about USD 57.5 million per year.

Gentle tax system

According to the 2021 ranking list of the Corporate Tax Haven Index – CTHI, Hungary takes 24th place on the list of 37 countries. This list rates the role of countries as tax havens when it comes to companies engaging in tax avoidance practices. Hungary’s share of the CTHI 2021 was 1.35 percent, indicating a limited role, but the country is a big player compared to its size. The country is a moderately attractive destination for multinational companies. However, it cannot compete with countries such as the Netherlands, the United Kingdom or Switzerland.