#StateAid: European Commission finds Hungarian advertisement tax to be in breach of EU rules

Photo © Reuters

In a decision hardly likely to warm the glacial relationship between the European Commission and Hungarian Prime Minister, Viktor Orban, DG-Competition has (today) published its’ decision that the Hungarian advertisement tax is in breach of EU State Aid rules because the progressive tax rates grant a selective advantage to companies. It also unduly favours, the Commission decided, those companies that did not make a profit in 2013.

Under the original 2014 Act, companies were taxed at a rate ranging from 0% to 50% dependent upon their advertisement turnover, a move that was widely criticised as penalising larger companies then smaller companies without any objective reasoning being provided by Hungary for the differentiation.

Similarly, the law’s provisions on the carrying forward of losses was also unfairly selective to companies as the provisions were restricted to companies that made no profits in 2013.

Again, Hungary failed to provide any objective justification as to why a company’s advertisement tax liability should depend on its profitability nor as to why companies with no profits in 2013 should, objectively, benefit more then their more efficient (I.e. profitable) competitors.

In a calculated snub to Brussels, upon the announcement of the Commission’s in-depth investigation in March 2015, Hungary acceded to the Commission’s request to suspend the tax but immediately introduced an amended version without notifying it or consulting with the Commission.

In an echo of the current dispute between the Republic of Ireland and the European Commission over the tax treatment of Apple, the Commission in its press release affirms the sovereign ability of Member States to decide the scope and amount of national taxation systems, but reiterates its position – forcefully advocated by Commissioner Vestager – that Member States must not use their national taxation systems to selectively favour one company over another.

The (non-confidential) version of the Commission’s decision will be published under State Aid decision reference number SA.39235 once any confidentiality issues have been resolved.

For the full text of the Commission’s press release please go to https://goo.gl/rpkH4L