Under the Hungarian Advertisement Tax Act, companies are taxed at a rate depending on their advertisement turnover. Accordingly, companies with a higher advertisement turnover are subject to higher, progressive tax rates. As to the companies that made no profits in 2013, the Advertisement Tax Act contained the possibility to deduct the tax base with their losses carried forward.
Upon the European Commission’s request in March 2015, Hungary had suspended the application of the tax in its original version and implemented an amended form. The Commission then declared that the amended advertisement tax being in force since July 2015 made certain steps in the right direction, but did not fully address the Commission’s concerns, since the amended version still maintains progressive rates based on turnover over a smaller range. Moreover, the limitations on the deduction of past losses remained unchanged.
On 4 November 2016, the European Commission published a decision establishing that the Hungarian advertisement tax is in breach of the EU state aid rules, since the progressive tax rates grant a selective advantage to certain companies. It also unduly favours companies that did not make profit in 2013 by allowing them to pay less tax. The Commission declared that there is no objective justification for this differential treatment.
The decision requires Hungary to remove the unjustified discrimination between companies under the Hungarian Advertisement Tax Act 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 authorities on the basis of the methodology established in the Commission’s decision. Recovery can be avoided for a company if it is demonstrated that the advantage received fulfils the requirements prescribed by the state aid rules.