An investigation into whether Hungary’s advertising tax complies with EU state aid rules has been launched by the European Commission (EC).
The tax, which was introduced in June 2014, is presently based on turnover as opposed to profits and is applied at progressive rates ranging from 0 to 50%.
While the European Commission does not question Hungary’s right to impose the tax, or the level at which it is set, it is however concerned that progressive rates could “selectively favour certain companies and give them an unfair competitive advantage”. The EC therefore has further prohibited Hungary from applying such rates until the conclusion of its investigation.
The EC stated “A progressive tax based on turnover places larger players at a disadvantage, unlike a progressive tax based on profits, which can be justified by the higher burden-bearing capacity of very profitable companies”.
Earlier, cabinet chief János Lázár, had told commercial channel ATV that he expected the tax to be cut to as little as five percent in response to increasing pressure from Brussels. Nevertheless, he still favoured a progressive rate “to protect small businesses”.
Commissioner Margrethe Vestager, in charge of competition policy, said she welcomed signals from the Hungarian Government that they intend to make changes. She added that the state aid investigation would “look in detail both at how the advertisement tax applies currently as well as how it is amended, to make sure there is no unfair discrimination against certain media companies”.
Any interested parties will now have the opportunity to make “without prejudice” comments on the investigation.