BUDAPEST: The European Commission announced on November 4 that Hungary’s amended advertising tax remains in breach of EU state aid rules and should be changed.
Under Hungary’s 2014 Advertisement Tax Act, companies were taxed at a rate depending on their advertising revenues. Companies with a higher turnover were subject to significantly higher, progressive tax rates, ranging from 0 percent to 50 percent. This, the Commission found in its initial investigation launched in March 2015, gave companies with a low turnover “an unfair economic advantage over competitors.”
The Commission’s investigation also took issue with a provision of the 2014 law allowing companies to deduct losses carried forward, but restricted it to those that made no profits in 2013. This, the EC contended, gave some companies an unfair economic advantage over their more efficient competitors in defiance of EU state aid rules.”
In July 2015, Hungary put in place an amended version of the tax, which maintained its progressive nature but reduced the range of tax rates from 0 percent to 5.3 percent. It also allowed companies to opt for retroactive application of the amended scheme.
While the Commission considers the changes a “step in the right direction,” it has taken issue with the fact that Hungary failed to notify it of the amendments, and remains of the view that there is “no objective justification” for the ongoing progressiveness of the tax. Furthermore, it noted that the limitations on deduction of past losses is unchanged.
The Commission’s latest decision requires Hungary to remove the discriminatory provisions of the advertising tax law and “restore equal treatment in the market.” Hungary is now faced with the possibility of having to recover tax from those companies which enjoyed an unfair advantage.
