Hungary Approves Advertising Tax Hike
The Hungarian parliament has approved an increase to the country’s advertising tax, despite concerns that the measure breaches European Union state aid rules.
The new legislation increases the advertising revenues tax from 5.3 percent to 7.5 percent beginning July 1, 2017. However, because companies do not pay the tax on revenues below HUF100m (USD364,000) per year, the Hungarian Government claims that the tax does not fall foul of EU state aid laws.
Under the state aid de minimis rule, the European Commission considers that public funding to a single recipient up to a certain amount over a three-year fiscal period has a negligible impact on trade and competition, and does not require notification. However, the de minimis threshold is currently set at EUR200,000 (USD225,000).
According to the legislation, companies that have benefited from the advertising tax allowance since 2014 will receive refunds of tax already paid.
Under Hungary’s 2014 Advertisement Tax Act, companies were taxed at a rate depending on their advertising revenues. Companies with a higher turnover were subject to significantly higher, progressive tax rates, ranging from 0 percent to 50 percent. This, the Commission found in its initial investigation launched in March 2015, gave companies with a low turnover “an unfair economic advantage over competitors.”
In July 2015, Hungary put in place an amended version of the tax, which maintained its progressive nature but reduced the range of tax rates from 0 percent to 5.3 percent. It also allowed companies to opt for retroactive application of the amended scheme.
However, in November 2016, the Commission said that while the changes represented a “step in the right direction,” it took issue with the fact that Hungary failed to notify it of the amendments, and remains of the view that there is “no objective justification” for the ongoing progressiveness of the tax.