Advertising tax - Mazars Tax Newsletter 2017/6

The proposal would partly “undo the past” by refunding to tax subjects publishing advertisements the advertising tax paid since 2014, but it would also increase the burdens of the stakeholders as it would nearly double the rate of the tax for the future.

Of course, the proposal can be considered as the answer to the earlier criticism by the European Commission. The Commission’s inspection, which ended last November, found that the progressivity of the Hungarian advertising tax rates put some enterprises in a more favourable position. This resulted in an unfair economic advantage for companies with a lower revenue in comparison with their competitors, which is irreconcilable with the state aid rules of the EU, and therefore the Commission has obliged Hungary to eliminate the unjustified discrimination between the companies and to harmonize its rules with those of the EU. The Hungarian government challenged this decision at the European Court of Justice, but at the same time also “escaped forward”.

The amended rules of the Advertising Act take effect from 25 May, 2017, with the following main changes:

The first and the most important change is that the tax already declared and paid by the publishers of advertisements will be refunded, and taxpayers do not have to pay it for 2016. The tax authority will inform those affected about the refundable amount of the overpayment. It is important to note, however, that the customers who ordered these advertisements are not affected by this change, and their tax will not be refunded by the tax authority.

Another advantageous change is that since 2017 the so-called “advertising for own purposes” (for instance, when a business advertises its products in its own magazine) will not belong under the scope of the law, so the tax does not have to be paid after the direct costs of such advertising.

It is disadvantageous for the advertisement providers, however, that the rate will increase from the current 5.9% to 9%, although this negative effect will be mostly perceptible in the tax year of 2018 only. Because of the mid-year change, the tax does not have to be paid for the first part of 2017, and the higher tax rate must be applied for the period from June until December. The distribution of the tax base of 2017 can follow 2 methods, and this way the tax subjects concerned will not get into a disadvantageous position.

In the end, although it might seem to be a formal change, in fact it is not: the current tax rate of 0%, which can be applied up to a tax base of 100 MHUF, will be discontinued, and a tax relief up to 100 MHUF will take its place. The bill also proposes the option that the tax relief, or rather, presumably its tax content of 9%, could be qualified as a small (de minimis) aid. This is how the Government tries to answer the Commission regarding its findings in relation to the progressive tax rates and the prohibited state aid. This also means that the relief rule cannot be applied by every tax subject, with a view to the allocation of de minimis support (maximum 200,000 EUR during 3 financial years) and the activities excluded from the scope of the aid.