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Tuesday, 08 November 2016 13:28

Commission finds Hungarian advertisement tax in breach of EU rules

Pursuant to the European Commission’s press release - published on 4th November 2016 - the Hungarian advertisement tax, which was introduced in 2014, is in breach of EU State aid rules.

It unduly favours certain companies and does not guarantee equal treatment, therefore the Commission in its decision requires Hungary to terminate these infringements.

The Commission objected basically the non-conformity of the progressive tax rates (companies with a lower advertisement turnover were subject to significantly lower tax rates) and the undue constraint of the deduction of losses carried forward.

The Commission's in-depth investigation opened in March 2015 has shown that by the applied progressive tax rates companies with a low advertisement turnover got an unfair economic advantage. Furthermore, the Commission's investigation found that the provision in the 2014 Act on the possibility to deduct losses carried forward (being restricted to companies that made no profits in 2013) also provided further, unfair economic advantage.

According to the Commission, the objective pursued by the Hungarian advertisement tax has not justified the necessity of the progressive tax rates’ application or of the specifically restrictive regulation regarding deductible losses carried forward, and also has not demonstrated why a company's advertisement tax liability should even depend on its profitability (of FY2013). In their opinion, Hungary gave those companies an unfair economic advantage over their more efficient competitors.

In view of the above, the Commission concluded that the regulation of the Hungarian advertisement tax was incompatible with EU State aid rules.

This decision requires Hungary to remove the unjustified discrimination between companies and to restore equal treatment in the market. For this, the Hungarian authorities must determine the precise amounts of tax (if any) to be recovered from each company, on the basis of the methodology established in the Commission decision. Recovery can be avoided for a company, if Hungary demonstrates that the advantage received meets the criteria of the de minimis Regulation.

The Hungarian Ministry of National Economy promptly reacted to the Commission’s decision with its own press release, in which the advertisement tax’s complete conformity was emphasized and that no change can be expected regarding the regulation.

We will inform our Clients as soon as the official standpoint is published.