Under Hungary's 2014 Advertisement Tax Act, companies were taxed at a rate depending on their advertisement turnover. Companies with a higher advertisement turnover were subject to significantly higher, progressive tax rates, ranging from 0% to 50%.
The Commission's in-depth investigation opened in March 2015 has shown that the progressivity of the tax rates favoured certain companies. In a tax system based on a single rate, smaller companies would in any event pay less tax than their larger competitors, because they have a smaller advertisement turnover. However, due to the progressive rates in the 2014 Act, companies with a low advertisement turnover were liable to pay substantially less advertisement tax, even in proportion to their advertisement turnover, than companies with a higher advertisement turnover. This gave companies with a low turnover an unfair economic advantage over competitors. Hungary has not demonstrated that the progressive tax rates were justified by the objective pursued by the advertisement tax.
Furthermore, the Commission's investigation found that the provision in the 2014 Act on the possibility to deduct losses carried forward also unduly favoured certain companies. It was restricted to companies that made no profits in 2013. Hungary has also not demonstrated that this provision was justified by the objective pursued by the advertisement tax. In particular, Hungary has neither demonstrated why a company's advertisement tax liability should depend on its profitability nor why this benefit should be available only to companies thatdid not make any profits in that specific year. It gave those companies an unfair economic advantage over their more efficient competitors.
On this basis, the Commission concluded that the measure was incompatible with EU State aid rules.
At the time the Commission opened the in-depth investigation, it also asked Hungary to suspend the application of the tax. Hungary suspended the tax but implemented an amended version, without notifying it to or consulting the Commission.
The Commission's investigation showed that the amended advertisement tax, in force since July 2015, took steps in the right direction but did not fully address the Commission's concerns. The amended scheme allows companies to decide themselves whether to opt for a retroactive application of the amended scheme. It maintains progressive rates based on turnover over a smaller range (0% and 5.3%). However, there is still no objective justification for this differential treatment. Moreover, the limitations on deduction of past losses remained unchanged.
Today's decision requires Hungary to remove the unjustified discrimination between companies under the 2014 Advertisement Tax Act and/or the amended version and restore equal treatment in the market. The precise amounts of tax to be recovered from each company, if any, must now be determined by the Hungarian authorities on the basis of the methodology established in the Commission decision. Recovery can be avoided for a company, if Hungary demonstrates that the advantage received meets the criteria of the de minimis Regulation.
The Commission does not question Hungary's right to decide on its taxation systems or on the objective of different taxes and levies. However, the tax system must comply with EU law, including State aid rules, and cannot unduly favor certain companies over others.
The non-confidential version of the decision will be made available under the case number SA.39235 in the public case register on the Commission's competition website once any confidentiality issues have been resolved. New publications of State aid decisions on the internet and in the Official Journal are listed in the State Aid/ Weekly e-News.