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General Court on the Hungarian advertisement tax

Tax alert

General Court to annul the European Commission's decision finding Hungarian advertisement tax incompatible with EU State aid rules.


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As summarized in our previous newsletter, the European Commission has conducted an investigation in relation to the domestic advertisement taxation rules, examining whether Hungary's provisions, in particular the highly progressive tax rate structure and the possibility of utilizing carry-forward losses under certain conditions, are compatible with EU state aid rules.

As a result of its investigation, the Commission concluded that the regulation - taking into consideration its amendments in force since July 2015 as well - was incompatible with EU state aid rules, considering that it provided selective advantage to certain advertisement taxpayers with a lower net sales revenue, as well as to taxpayers realizing a zero- or negative corporate income tax base in 2013.

In its decision dated November 2016, the Commission obliged Hungary to eliminate unjustified discrimination between companies and to restore equal treatment on the market.

Further to the Commission's decision, in July 2017, Hungary reimbursed the declared and paid advertisement tax amounts to advertisers retroactively to 2014, and furthermore significantly changed the advertisement tax regulations. Simultaneously, Hungary appealed at the General Court of the European Union against the Commission's decision.

On 27 June 2019, the General Court ruled that in its view, the Commission had not proved properly the existence of selective advantages constituting unlawful state aid solely on grounds of the progressive structure of the tax. Furthermore, the General Court considered that the rules on the utilization of carry-forward losses in the advertisement tax system have been determined on the basis of objective criteria, regardless of the choice of the respective entities, and therefore are not selective in that regard.

In light of the above, the General Court annulled the Commission's decision entirely.

It should be noted that this was the second recent and similar judgement of the General Court, since in May 2019 it annulled the Commission’s decisions on a retail tax introduced in Poland as well. In September of 2016, Poland had introduced a surtax with highly progressive tax rates on retail companies with monthly net sales revenue of over PLN 17 million (about EUR 4 million), and the basis of the tax was net sales revenue. During the summer of 2017, the Commission found that – similar to the Hungarian advertisement tax – due to its progressive nature, the Polish retail tax constituted a state aid incompatible with the internal market, and had ordered the suspension of the application of the tax, which was fulfilled by the Polish Government.

However, in its May 2019 judgement, the General Court stated that the Commission had not correctly assessed the selective nature of the retail tax solely on the basis of its progressive structure. Furthermore, in its decisions, the Commission was unable to establish the existence of a selective advantage which would adversely differentiate between the affected entities either.

In light of the above, the General Court annulled the Commission’s decisions classifying the Polish retail tax as prohibited state aid, which has also been referred to in its ruling on the Hungarian advertisement tax.

An appeal may be filed against the judgments within two months and 10 days from the date of their notification.

In view of the rulings of the General Court, a question arises as to how these may affect previous decisions of the Commission in similar cases, such as those establishing prohibited state aid regarding the health contribution of tobacco industry businesses, or food chain inspection fee. It is also questionable whether it will also have an impact on the preliminary ruling proceedings currently ongoing before the Commission related to the Hungarian sector-specific surtax effective between 2010 and 2012, which include - among others – state aid considerations as well.

We will keep you informed about any further development in our forthcoming Tax Alert.

© 2019 KPMG Hungária Kft., a magyar jog alapján bejegyzett korlátolt felelősségű társaság, és egyben a független tagtársaságokból álló KPMG-hálózat magyar tagja, amely hálózat a KPMG International Cooperative-hez (“KPMG International”), a Svájci Államszövetség joga alapján bejegyzett jogi személyhez kapcsolódik. Minden jog fenntartva.

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