Hungary’s corporate tax rate of 7.5 per cent has placed it ahead of traditional tax havens including Ireland, Cyprus and Malta, according to findings from the European Parliament’s Special Committee on Financial Crimes, Tax Evasion and Tax Avoidance.
The committee identified Hungary as one of seven European countries displaying characteristics of a tax haven, with its low multinational tax rate raising concerns about aggressive tax planning structures being exploited by international corporations.
Co-rapporteur Jeppe Kofod stated: “Europe has a serious money laundering and tax fraud problem. We have the world’s largest, richest and most integrated single market with free movement of capital, but little to no effective cross-border supervision and 28 differing national anti-money laundering and anti-tax fraud provisions.”
The European Parliament reported last year that whilst Hungary had implemented a number of measures within its tax system, significant problems persist. The country’s tax cuts pose medium-term fiscal risks without offsetting measures being introduced to balance the revenue losses.
Although Hungary has reduced the tax wedge on labour, it remains excessively high for certain low-income groups when compared with other EU member states. The burden disproportionately affects workers at the lower end of the income scale despite government efforts to address wage taxation.
Administrative burdens associated with tax collection continue to be substantial, the parliament found. Hungarian authorities have made considerable efforts to streamline tax collection processes, but the system still presents challenges for businesses and tax authorities alike.
Indicators examined by the committee suggest Hungary’s tax regulations may be exploited by multinational corporations in aggressive tax planning structures. These arrangements allow companies to minimize their tax obligations across multiple jurisdictions by routing profits through Hungary’s favorable tax regime.
The findings place Hungary in a group of seven European countries identified as possessing tax haven characteristics, though the parliament did not publicly name all nations on the list. The designation highlights concerns about how Hungary’s tax policies interact with the broader European single market.
The European Parliament’s investigation revealed fundamental structural weaknesses in how the EU addresses cross-border tax avoidance and money laundering. Despite having the world’s largest and most integrated single market with free capital movement, the bloc lacks effective cross-border supervision mechanisms.
Each of the 28 member states maintains its own anti-money laundering and anti-tax fraud provisions, creating inconsistencies that sophisticated tax planning can exploit. The fragmented approach enables companies to navigate between different national systems to reduce their overall tax burden.
The committee’s findings are expected to inform future European Parliament discussions on harmonizing tax policies across member states and strengthening cross-border supervision of financial crimes. Lawmakers will likely face pressure to address the disparities that allow certain countries to function as tax havens within the European Union’s borders.
