Opinion of the Advocate General: the Hungarian
advertising tax does not infringe the EU law
Last week, the CJEU’s proceedings in the case of the Hungarian advertising tax and the Polish tax on retail sector took an interesting new turn.
On 15 October 2020, the European Court of Justice (CJEU) issued an Opinion of the Advocate General on the Hungarian advertising tax and the Polish tax on retail sector, according to which none of the taxes is contrary to the European law. A court hearing is still expected in both cases. The Advocate General's opinion is not binding to the CJEU, but practice shows that the Court's position is usually in line with that of the Advocate General.
This followed that in the summer of 2014 Hungary introduced the turnover-based, band-progressive advertising tax which burdened mostly large companies. The taxpayers were primarily media and advertising service providers and publishers, as well as publishers of predominantly Hungarian-language Internet advertisements. Further, the companies who ordered advertisements had to comply with special documentation requirements; in the case of non-compliance the customers also became obliged to pay the advertising tax. The tax base was the net sales revenue from provision of advertising services (in the case of customers, it was the net cost of the advertising orders), which was initially subject to six (0% to 50%) and later only two (0% and 5.3%) tax rates. The part of the sales revenue (or, in the case of taxable customers, the cost of the orders) below HUF 100 million was not subject to the tax.
By its decision of 30 June 2017, the European Commission declared the advertising tax incompatible with the common market, given that companies with a turnover of less than HUF 100 million were exempted from the tax, which in the Commission's view conferred a selective advantage on them and therefore constituted State aid.
Hungary challenged the decision of the European Commission before the CJEU, as a result of which the European Court of Justice annulled it on 27 June 2019, as it did not find evidence of granting a selective advantage to companies with lower turnover. The European Commission brought an appeal against the CJEU decision. Until the matter was clarified, Hungary - in its own competence - practically decided to temporarily suspend the advertising tax. As a result, under the current law, from 1 July 2019 to 31 December 2022, the rate of advertising tax is 0%. (At the same time, in 2020 Hungary reintroduced the special retail tax).
In her opinion, the Advocate General emphasized that progressive taxation based on turnover is not contrary to the fundamental freedoms, since turnover is a neutral tax criterion which constitutes a relevant indicator of a taxable person’s ability to pay. Around the world turnover-based income taxes are on the rise, as is shown by the Commission’s proposed digital services tax, the Advocate General underlined. She also classified the progressive rates as a perfectly common means in income taxation.
The Hungarian Government has not yet commented on this new development.
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