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Hungary: Tax on advertising not precluded, but penalty regime held incompatible with EU law

Hungary: Tax on advertising not precluded

The Court of Justice of the European Union (CJEU) today issued a judgment concluding that:

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  • EU law did not preclude foreign suppliers of advertising services from being subject to an obligation to submit a tax declaration in relation to that tax.
  • The system of penalties relating to the Hungarian tax on advertising is not compatible with EU law.

The case is: Google Ireland Ltd. (C-482/18 (3 March 2020))


Background

A company (incorporated under Irish law) conducted an activity subject to the Hungarian tax on advertising. The company failed to comply with its obligation to submit a tax declaration in respect of the Hungarian tax on advertising.

Under the penalty system relating to the tax on advertising, a penalty of HUF 10 million (approximately €31,000) was initially imposed on the company for its noncompliance with the requirement to file a tax declaration. Within a few days, additional penalties of a total HUF 1 billion (approximately €3.1 million) were imposed on the company—the maximum that could be imposed under applicable Hungarian law.

The company contested the penalty assessment as not being compatible with EU law and specifically challenged (1) the obligation for foreign suppliers of advertising services to submit a tax declaration, and (2) the system of penalties relating to the tax on advertising.


CJEU judgment

As noted in a related release [PDF 155 KB], the CJEU concluded that the principle of the freedom to provide services (under provisions of the EU treaty) did not preclude Hungarian law that requires suppliers of advertising services established in another EU Member State to submit a tax declaration for the purposes of their liability regarding the Hungarian tax on advertising—despite the fact that suppliers of such services established in Hungary were exempt from that reporting.

However, the CJEU held that the EU principle of the freedom to provide services precludes the measures under Hungarian law that impose penalties on suppliers of such services for non-compliance with the requirement to file a tax declaration—notably with a series of penalties being assessed within several days, without allowing sufficient time to comply with the reporting.

The CJEU noted that the amount of the penalty that would be imposed on suppliers of advertising services established in Hungary that fail to comply with a similar obligation to submit a tax declaration or to register contrary to the general provisions of the tax law, would be significantly less and would not be increased for continued failures to comply with the rules. 


Read a March 2020 report prepared by KPMG’s EU Tax Centre

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