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EU Court Rules For Hungary In Advertising Tax Dispute

Friday, July 5, 2019

On June 27, 2019, the General Court of the European Union annuled a decision by the European Commission which found that the Hungarian advertisement tax was incompatible with the EU state aid rules.

In 2014, Hungary introduced an advertisement tax which constitutes a special tax applied on turnover derived from the broadcasting or publication of advertisements in Hungary. Economic operators that broadcast or publish advertisements are subject to that tax.

The taxable amount of the tax is the net turnover for the financial year generated by the broadcasting or publication of advertisements, to which progressive rates ranging from 0 percent to 50 percent per bracket of turnover are applied, the first taxable bracket commencing at HUF500m (approximately EUR1,562,000).

Subsequently, Hungary replaced that scale of six progressive rates by a scale comprising two rates: a 0 percent rate for the part of the taxable amount below HUF100m and a second rate, of 5.3 percent, for the part of the taxable amount above that sum.

Taxable persons subject to advertisement tax whose pre-tax profits for the financial year 2013 were zero or negative could deduct from their 2014 taxable amount for that tax 50 percent of the losses carried forward from the earlier financial years.

By decision of November 4, 2016, the Commission found that the tax system relating to the advertisement tax constituted a state aid measure incompatible with the internal market.

The Commission found that the progressive tax rates differentiated between undertakings with high advertisement revenues (and thus large undertakings) and undertakings with low advertisement revenues (and thus small undertakings), and that a selective advantage was granted to the latter based on their size. The Commission was also of the view that the 50 percent deductibility of losses carried forward granted a selective advantage constituting state aid.

Subsequently, Hungary brought before the General Court an action for annulment of the Commission's decision.

In its judgment, as regards Hungary's application of the progressive rates at issue, the General Court found, in essence, for the same reasons as those set out in its recent judgment concerning the Polish tax on the retail sector, that the Commission was not entitled to infer that there were selective advantages constituting state aid solely from the progressive structure of the advertisement tax.

The General Court concludes that the 50 percent deductibility of the losses carried forward does not entail a discriminatory element contrary to the advertisement tax's objective and, accordingly, does not constitute a selective advantage.

As a result, the Commission's decision was annuled by the General Court in its entirety.