Hungary adjusts advertising tax after EU objections

By bne IntelliNews May 6, 2015

bne IntelliNews -


The Hungarian government has drafted a bill to adjust the controversial advertising tax it introduced last year after coming under pressure from EU regulators. The draft bill, published on the government website, will impose a significantly lower levy at a time when the ruling Fidesz party needs more favourable media coverage to stem a decline in approval ratings.

The Hungarian government controversially introduced a progressive advertising tax on media companies in 2014. The rate of the tax ranges from 0%-50% based on revenue. The 50% levy applies only to RTL Klub, the country's largest commercial TV station, which is owned by German giant Bertelsmann. That prompted RTL to file a legal complaint with the European Commission in October claiming the charge was “confiscatory”. The company, which operates eight channels in Hungary, said earlier its 2014 net profit plunged 25% partly because of the Hungarian tax.

In response, the European Commission launched in March a probe into Hungary’s advertising tax on concerns it may breach EU state-aid rules. The commission then said the progressive tax based on turnover places larger players at a disadvantage, unlike a progressive tax based on profits. It also added the investigation will aim to verify that such a tax does not selectively favour certain companies over their competitors. Pending the results of the "in-depth investigation," the commission said it has ordered Hungary to suspend the levy.

The newly-drafted bill envisages the top rate to be reduced to 5.3% on income of over €330,000. A zero percent rate would be applied to a tax base of up €330,000. The government said it expects to raise HUF6.6bn (€22mn) from the tax in 2015.

In a note accompanying the bill the government said the amendments are drafted “in the interest of closing a legal dispute, while weighing the possible consequences of protracted litigation”, according to MTI. If approved by the parliament as expected on June 30, the law will come into effect within a month.

A government spokesman said the amendments were made in consultation with the EC but an official in Brussels said the commission was not formally notified by Budapest about the planned changes and that its investigation into the tax is continuing, The Financial Times reported.

This is the second time in less than a year the Hungarian government is backtracking on plans to tax the media sector. It had to scrap plans for the world’s first “internet tax” following mass demonstrations in October.

Local media has also suggested that the latest climb down followed a behind-the-scenes deal agreed in January with RTL, just ahead of a visit by Merkel to Budapest. The government reportedly offered to cut the tax in return for less critical news coverage from Hungary's top commercial broadcaster. This should help the ruling party prop up support, with approval ratings having plunged in recent months amid unpopular measures and corruption allegations.

The removal of RTL Klub CEO Dirk Gerkens was also reportedly part of the deal, which all parties have vehemently denied has ever been discussed. However, the company announced in March the highly outspoken channel chief has left. A temporary replacement is holding the fort while the German company searches for a local executive to take over, "in order to further strengthen RTL group's ties with Hungarian society".

The climb down also comes at a time when once once-loyal outlets owned by media tycoon Lajos Simicska have adopted a more critical tone towards the government. The school friend of Prime Minister Viktor Orban, and until recently major funder of the ruling Fidesz party, recently fell out with the premier and is in the midst of a high profile fight with him.

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