Antitrust Law Daily Wrap Up, ADVERTISING NEWS: European Commission opens investigation into Hungarian advertisement tax, (Mar 12, 2015)

By Dan Selcke, J.D.

The European Commission has opened an in-depth investigation into whether Hungary’s advertisement tax complies with EU state aid rules, according to an announcement.

The tax in question was instituted through the amended Advertisement Tax Act, which the country adopted in 2014. The Act imposes a progressive tax on advertisements published in the media, and is applicable to all media companies.

The tax applies to different companies in different ways depending on the amount of turnover the companies derive from advertisement activities. Companies with small or medium-sized advertisement turnover are either fully exempted or taxed at 1%, while companies with high advertisement turnover are taxed at a progressive rate between 10% and 50%.

The European Commission is concerned that this progressive tax could selectively favor certain companies and give them an unfair competitive advantage in breach of EU state aid rules. Specifically, companies with a low advertisement turnover are liable to pay substantially less advertisement tax than companies with a higher advertisement turnover, which could place the larger companies at a disadvantage. By way of contrast, a progressive tax based on profits rather than turnover could be justified by the higher burden-bearing capacity of very profitable companies.

The Commission also has doubts if provisions in the Act allowing for the deduction of previous losses from the taxable advertisement turnover are in line with state aid rules.

European Commission Margrethe Vestager commented on the investigation. "It is very important that we ensure a level playing field on media markets throughout Europe. Many media today rely on advertisement income to finance their operations. I welcome the signals from the Hungarian government that they intend to make changes to the advertisement tax. Our state aid investigation will look in detail both at how the advertisement tax applies currently as well as how it is amended, to make sure there is no unfair discrimination against certain media companies."

Until the Commission has finished its assessment, it has decided to prohibit Hungary from applying the progressive rates. In the interim, interested third parties will be able to submit comments. After the investigation is over, the Commission will decide whether the advertisement tax amounts to state aid to certain companies. If so, it will decide whether that aid complies with EU rules.

The non-confidential version of the Commission’s decision will be made available under the case number SA.39235 in the State Aid Register on the Commission's website once any confidentiality issues have been resolved.

News: Advertising