Judgment of the Court of Justice on the Hungarian advertisement tax

In 2014 Hungary introduced the advertisement tax as a direct business tax that must be paid by media content and service providers and publishers of advertisements. The tax base was the net sales revenue originating from the taxable activities in the tax year, i.e. the turnover and not the profit, and a progressive tax rate was established originally with six tax rates between 0% and 40%. The Advertisement Tax Act also provided that taxable persons whose pre-tax profits for the 2013 financial year were zero or negative, could deduct from their 2014 taxable amount 50% of the losses carried forward from the earlier financial years (“mechanism for partial deductibility of losses carried forward”).

In November 2016, the European Commission stated that the progressive nature of the tax measure of the Advertisement Tax Act and the mechanism for the partial deductibility of losses carried forward must be considered as state aid.

Hungary brought an action against the decision of the Commission before the General Court of the European Union. In June 2019, the General Court upheld the actions, annulled the Commission’s decision and declared that the higher thresholds that had been established by progressive taxation in respect of the advertisement tax as turnover tax, does not itself result in the existence of a selective advantage for companies with lower turnover. The Commission brought an appeal against the judgement of the General Court before the Court of Justice.

On 16 March 2021, the Court of Justice stated in its judgment that the Commission had not proved that those characteristics of the advertisement tax (i.e. a special tax, applied progressively by rates and based on turnover), adopted by the Hungarian legislature in the exercise of its discretion in the framework of its tax legislation autonomy, were designed in a manifestly discriminatory manner, with the aim of circumventing the requirements of EU law on state aid. In addition, the Court of Justice established that the Commission had erred in its opinion that the mechanism for the partial deductibility of losses carried forward established a selective advantage constituting state aid, in favour of undertakings whose pre-tax profits for the 2013 financial year were zero or negative and which had losses carried forward. As a result, the Court of Justice has dismissed the appeal of the Commission in its entirety.