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Hungarian advertisement tax – opinion of the Advocate General has been released

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 is 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%. After several amendments, since 1 July 2017 the tax rates were 0% up to HUF 100 million and 7.5% for the portion exceeding this amount. From 1 July 2019 the advertisement has been temporarily suspended and the tax rate was decreased to 0%.

In November 2016, the European Commission stated that the Hungarian advertisement tax is incompatible with the common market, since mainly companies with a high turnover (i.e. large undertakings) are affected by this tax. As such, it grants for smaller undertakings an impermissible advantage, thus it must be considered as State aid.

Hungary challenged 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 fact that higher thresholds has been established by progressive taxation in respect of this advertisement tax as turnover tax, it 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 15 October 2020, the opinion of Advocate General Juliane Kokott was released, proposing that the Court of Justice dismiss the Commission’s appeal and uphold the judgment of the General Court. The opinion is not binding on the Court of Justice, however, it has an important role for proposing a legal solution in the given case in complete independence. The Advocate General referred to the fundamental freedom to introduce a turnover-based progressive tax, since the amount of turnover means a neutral criterion of differentiation and it can reflect the taxable person’s ability to pay. She emphasized that a generally applicable tax law creating the reference framework would only be deemed as an aid if its design was manifestly inconsistent. However, the existence of such inconsistency could not be established by the General Court and the progressive tax rate itself does not constitute an inconsistency. The Advocate General also highlighted that the turnover-based taxation has its advantages and disadvantages, however, the appropriate tax must be determined by the given tax legislature, not by an authority or a court.