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Hungarian Advertisement Tax – Opinion of the Advocate General Has Been Released

Hungarian Advertisement Tax – Opinion of the Advocate General Has Been Released

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In 2014 Hungary introduced the advertisement tax as a direct business tax that must be paid by media content and service providers and publishers of advertisements. The tax base is the net sales revenue originating from the taxable activities in the tax year, i.e. the turnover and not the profit, and a progressive tax rate was established originally with six tax rates between 0% and 40%. After several amendments, since 1 July 2017 the tax rates were 0% up to HUF 100 million and 7.5% for the portion exceeding this amount. From 1 July 2019 the advertisement has been temporarily suspended and the tax rate was decreased to 0%.

In November 2016, the European Commission stated that the Hungarian advertisement tax is incompatible with the common market, since mainly companies with a high turnover (i.e. large undertakings) are affected by this tax. As such, it grants for smaller undertakings an impermissible advantage, thus it must be considered as State aid.

Hungary challenged the decision of the Commission before the General Court of the European Union. In June 2019, the General Court upheld the actions, annulled the Commission’s decision and declared that the fact that higher thresholds has been established by progressive taxation in respect of this advertisement tax as turnover tax, it does not itself result in the existence of a selective advantage for companies with lower turnover. The Commission brought an appeal against the judgement of the General Court before the Court of Justice.

On 15 October 2020, the opinion of Advocate General Juliane Kokott was released, proposing that the Court of Justice dismiss the Commission’s appeal and uphold the judgment of the General Court. The opinion is not binding on the Court of Justice, however, it has an important role for proposing a legal solution in the given case in complete independence. The Advocate General referred to the fundamental freedom to introduce a turnover-based progressive tax, since the amount of turnover means a neutral criterion of differentiation and it can reflect the taxable person’s ability to pay. She emphasized that a generally applicable tax law creating the reference framework would only be deemed as an aid if its design was manifestly inconsistent. However, the existence of such inconsistency could not be established by the General Court and the progressive tax rate itself does not constitute an inconsistency. The Advocate General also highlighted that the turnover-based taxation has its advantages and disadvantages, however, the appropriate tax must be determined by the given tax legislature, not by an authority or a court.

By Lidia Suveges, Attorney at law, KCG Partners Law Firm

KCG Partners at a Glance

KCG Partners is a Hungarian business law firm providing a comprehensive range of legal services to international and local clients seeking local knowledge and global perspective. The firm comprises business-minded lawyers with sector-specific expertise, creating value for clients by applying a problem-solving approach and delivering innovative solutions.

The firm has a wealth of knowledge in corporate law, M&A, projects and construction, energy, real estate, tax, employment, litigation, privacy and forensics, securitization, estate planning and capital markets.

To address clients’ regional and international concerns, the firm maintains active working relationships with other outstanding independent law firms in Central and Eastern Europe, whilst senior counsel Mr. Blaise Pásztory brings over 40 years’ of US capital market and fund management experience.

KCG Partners Law Firm is the result of the teamwork of passionate and talented lawyers guided by the same principles and sharing the same values: 

  • Our most valuable asset is our people. They are the engine of our business and the key to our success.
  • We push boundaries by looking for innovative solutions that can empower our clients to achieve greater results.
  • We place our experience, commitment and professionalism to your service.
  • We are driven by our vision to shape and lead the Hungarian legal market and become a first choice law firm in our practice areas.

Firm's website: http://www.kcgpartners.com