The history and regulation of the advertisement tax since its introduction on 15 August 2014 has been rather stormy.
Since introduction, it has been amended several times. It was last amended on the basis of decision SA.39235 of the European Commission, as in this decision of 4 November 2016, the European Commission designated the advertisement tax and its regulation as state aid due to progressive nature of taxation, since the progressive tax rates applied therein granted selective advantage to certain companies. In its communication, the Commission highlighted that “it also unduly favours undertakings that did not make a profit in 2013 by allowing them to pay less tax. Pursuant to the 2014 Act on the Advertisement Tax, the companies were taxed at a rate depending on their advertisement turnover. The companies with a high advertisement turnover were subject to significantly higher progressive tax rates, ranging from 0 % to 50 %. The in-depth investigation commenced by the Commission in March 2015 has shown that progressivity of the tax rates favoured certain companies. In a tax system based on a single rate, smaller companies would in any event pay less tax than their larger competitors, because they have a smaller advertisement turnover. However, due to the progressive rates in the 2014 Act, companies with a low advertisement turnover were liable to pay substantially less advertisement tax, even in proportion to their advertisement turnover, than companies with a higher advertisement turnover. This gave companies with a low turnover an unfair economic advantage over competitors. Hungary has not demonstrated that the progressive tax rates were justified by the objective pursued by the advertisement tax. Furthermore, the Commission's investigation found that the provision in the 2014 Act on the possibility to deduct losses carried forward also unduly favoured certain companies. It was restricted to companies that made no profits in 2013. Hungary has also not demonstrated that this provision was justified by the objective pursued by the advertisement tax. In particular, Hungary has neither demonstrated why a company's advertisement tax liability should depend on its profitability, nor why this benefit should be available only to companies that did not make any profits in that specific year. Hungary gave those companies an unfair economic advantage over their more efficient competitors. On this basis of the above, the Commission concluded that the measure was incompatible with EU State aid rules. On the basis of the investigation, the Commission also requested Hungary to suspend the application of the tax, which was done, but Hungary implemented an amended version, without consulting the Commission. The Commission's investigation showed that the amended advertisement tax, in force since July 2015, took steps in the right direction but did not fully address the Commission's concerns. The amended scheme allows companies to decide themselves whether to opt for a retroactive application of the amended scheme, and maintains progressive rates (0% and 5.3%) based on turnover over a smaller range. However, there is still no objective justification for this differential treatment. In addition, the limitations on deduction of past losses remained unchanged. The decision issued on 4 November 2016 requires Hungary to eliminate the unjustified discrimination between companies under the 2014 Advertisement Tax Act and/or the amended version and restore equal treatment in the market. The precise amounts of tax to be recovered from each company (if any) must now be determined by the Hungarian authorities on the basis of the methodology established in the Commission decision. Recovery can be avoided for a company if Hungary demonstrates that the advantage received meets the criteria of the de minimis regulation.”
In light of all these facts, the legal regulation concerning the advertisement tax has been amended.
The following summarizes the key changes in the legislation concerning the advertisement tax, which has been published in Issue 74 of 2017 Hungarian Official Gazette.
Act XLVII of 2017 significantly modified the advertisement tax system, the detailed rules of which are set out in Act XXII of 2014 on Advertisement Tax (based on the Hungarian abbreviation hereinafter referred to as “Ratv.”). Pursuant to Subsection (1) of Section 2 of Ratv., advertisements published in exchange for consideration shall be subject to tax liability, as against the wording before where publishing advertisements was designated as a taxable event.
Enforceable as from 26 May 2017, the act repeals the provisions on advertisements for own purposes. All this means that publishing advertisements for consideration through specific channels shall exclusively be subject to tax liability.
Publishing advertisements for own purposes, i.e. publishing advertisements relating to a taxpayer’s own products, goods, services, business, name and publications shall not result in tax liability. Taxable entities that have been classified as taxable entities due to publishing advertisements for own purposes and their tax base exceeding HUF 100 million has come from costs incurred directly due to publishing advertisements for own purposes only shall no longer be regarded as taxable entities as advertisement publishers, according to the new rules.
The Act also contains provisions on the rate of tax.
According to the rules in force until 30 June 2017, the rate of the tax payable by an advertisement publisher shall be 0% for the portion of the tax base not exceeding HUF 100 million, and shall be 5,3 % for the portion of the tax base in excess of HUF 100 million.
In accordance with the rules in force as from 1 July 2017, the rate of the tax shall be 0 % of the tax base between 1 January 2017 and 30 June 2017, and shall be 7.5% of the tax base as from 1 July 2017. Pursuant to the rules amended, HUF 100 million of the net revenue earned by the taxable entity in the particular fiscal year as a result of its taxable activity shall be exempt from tax [Subsection (3) of Section 5 of Ratv.]. Exemption constitutes de minimis aid which is available in accordance with the rules set out in Commission Regulation 1407/2013/EU on the application of Articles 107 and 108 of the Treaty on the Functioning of the European Union [Subsection (4) of Section 5 of Ratv.]. On the basis of said rules, the aggregate amount of direct and indirect de minimis aids, in general, may not exceed EUR 200,000 over three successive fiscal years. Pursuant to the regulation, the limitation regarding the period of 3 years shall be considered for a single undertaking, and not per tax payers.
The amendment actually settles the issue of the payables and payments before 1 July 2017, since
- the tax declared and payed (as a publisher under Subsection (1) of Section 3 of Ratv.) will appear as overpayment on the tax account, and the taxpayers are entitled to refunding of the amount concerned in accordance with Act XCII of 2003 on the Rules of Taxation (the tax authority will inform the taxpayers about the possibility and the relevant conditions);
- the tax declared but not yet paid for the fiscal years ending until 30 June 2017 is not required to be paid.
-the tax rate for the period between 1 January 2017 and 30 June 2017 is 0 %.
On the basis of the rules amended it can be stated that the tax liability will be based on the new rules as from 1 July 2017. For calculation of the tax base for the fiscal year including 1 July 2017, the transitional provisions (apportionment and closing of the books) apply.
The scope of tax liability of customers ordering publication of an advertisement has remained unchanged.
Tasks to be performed:
It has to be considered if the taxpayer is liable to pay advertisement tax under legal title of publishing advertisements for own purposes. If yes, the tax authority will notify the taxpayers of the terms of refunding the tax declared (in the tax return forms No. 1494, 1594, or, for tax return forms having been submitted, in 1694) and paid for the preceding fiscal years; - if the tax declared in the above forms has not been paid yet, it is not required to be paid at all. That is all you have to do; on the basis of the new rules, publishing advertisements for own purposes is not subject to tax liability.
If the tax payer publishes advertisements in exchange for consideration, then the tax authority will notify him or her of the terms of refunding the tax declared (in the tax return forms No. 1494, 1594, or, for tax return forms having been submitted, in 1694) and paid for the preceding fiscal years, furthermore, if the amount of the tax declared has not been paid, it will not have to be paid at all, however, you are still required to submit the tax return form for each fiscal year. This, in respect of the year of 2016, for example, implies a deadline of 31 May 2017 for a taxpayer operating on the basis of an uninterrupted calendar year. For the fiscal year of 2017, the tax base has to be established on the basis of advertisements published for consideration exclusively; the tax rate for the portion of the tax base (calculated by means of any of the above-mentioned methods) for the first half of the 2017 fiscal year is 0%, so the tax will only have to be paid for the portion of the tax base for the second half of the 2017 fiscal year, performing the calculation with the new tax rate of 7.5%.
It is worth noting that, simultaneously with the amendment, the rules applying to the estimated tax have also been changed. All this means that, for the future, the amount of the estimated tax has to be calculated from the net revenue and the special increment, i.e. when calculating the basis for the estimated tax for 2017, the costs incurred in 2016 in connection with publishing advertisements for own purposes are not required to be taken into consideration.
Should you need any assistance for the interpretation of the legal regulations on the advertisement tax or establishing the tax liability, do not hesitate to contact the experts of VGD.