EU challenges Hungary's revamped telecom tax

By bne IntelliNews January 25, 2013

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Setting up yet another face-off between Brussels and Budapest, the European Commission launched yet another formal challenge to a Hungarian tax on January 24 as it opened infringement procedures against the country's telecommunications tax.

The Commission has written to the Hungarian government giving notice that it has started a second infringement procedure concerning telecom taxation, spokesman Ryan Heath said, according to Reuters. The economy ministry said in a statement it does not intend to modify the tax, arguing that it is fully in line with EU rules, and that Budapest stands ready to defend itself.

Among numerous challenges against Hungarian legislation launched by the EU since the Fidesz government came to power in 2010, a ruling on Commission objections to a previous special tax on the telecoms sector is now pending at the European Court of Justice. Should the government lose that first case, it might have to pay back about HUF180bn levied on the revenues of the telecom sector between 2010 and 2012.

The second telecom tax - introduced in May and levied on each telephone call and text message - was a response to the objections to the first. Brussels successfully challenged that on the grounds that under EU law, administrative charges must be proportionate to, and used for the purpose of, the state's costs in running the system.

Heath said that the Commission insists that the new tax breaches that requirement. Budapest maintains this is not relevant as the levy is a tax, not an administrative charge, as its predecessor was.

"While the contested tax is levied specifically on telecom operators, the Commission has concerns that its proceeds will cover costs beyond those incurred in the management and enforcement of the general authorisation system," Heath said in an emailed reply to Reuters questions.

Brussels has launched numerous challenges - formal and otherwise - against the measures of Prime Minister Viktor Orban over the past three years. Those objections have covered taxes levied on sectors such as banking, retail and energy, which are dominated by foreign companies - constitutional changes affecting the central bank and judiciary, and legislation on the media.

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