On Friday 4 November, the European Commission found that the Hungarian advertising tax of 2014 is incompatible with the EU rules on state aid, as its progressive rates (between 0% and 50%) give certain companies a selective advantage. It also unduly favours companies which did not register any profits in 2013, as it allows them to pay less tax.
The in-depth investigation showed that due to the progressive rates, companies with low turnover benefitted from an undue economic advantage.
The provision that allows losses carried forward to be deducted also unduly favoured certain companies, as it is limited to businesses that registered no profits in 2013. Hungary has failed to supply adequate explanations to justify these aspects of the tax.
When the Commission opened its in-depth investigation, it also asked Hungary to suspend the tax. However, it then implemented a modified version of it, without notifying the Commission of this. The Commission finds that the amended tax is a step in the right direction, but is not enough to put its concerns to bed.
The modified regime allows companies to decide themselves whether to opt for a retroactive application of the new scheme. The progressive nature of the rates based on turnover stays in, but the range has been reduced (now varying between 0% and 5.3%). However, there is still no objective justification for this differentiated treatment. Furthermore, the limitations on the deduction of losses carried forward remain unchanged.
Today's decision requires Hungary to scrap the unjustified discrimination between companies brought in by the law of 2014 on the advertising tax.
The exact levels of the taxes to be recovered from each company, if applicable, must now be calculated by the Hungarian authorities on the basis of the methodology laid down in the Commission's decision. The recovery procedure can be avoided for individual companies if Hungary is able to demonstrate that the advantage received meets the criteria of the revised scheme for exemptions applicable to low levels of aid (de minimis regulation). (Original version in French by Élodie Lamer)