2014. June 17.

The advertising tax is coming!

On the 17th of June 2014 the heavily disputed Act XXII of 2014 on Advertising Tax was announced, which introduces an entirely new type of tax in Hungary.

 Under the broad scope of the Act, advertisements that are “predominantly in Hungarian” will become taxable in the media and entertainment industry (television, radio), publications distributed in Hungary, out-of-home advertising (e.g. posters, billboards, bulletin billboards, aerial banner-towing) and on vehicles, real estate or the internet.

 Who is taxable?

 The list contained in the Act confirms that publishers, online advertisers, persons or other legal entities utilising vehicles, printed material or real estate for the purpose of advertising, as well as any “media content provider settled in Hungary” are taxable.

 The question on who constitutes a media content provider within the latter category has already raised a number of questions as, in this regard; the legislation is contrary to EU directives.

 According to the relevant media laws, any media service provider which provides media services on frequencies which belong to the state of Hungary will become taxable, regardless of the location of the company’s headquarters.

 The European Court of Justice has dealt with the question of territorial scope and jurisdiction on multiple occasions, for instance in the case of Commission vs. United Kingdom (Case C-222/94), where it was held that if any service provider is established in more than one Member State of the European Union, the Member State having jurisdiction over it is the Member State in which the service provider has the centre of its activities. The situation is different, however, where the media service provider is established in another Member State in order to circumvent the stricter rules of the main country in which it operates.

 Extraordinarily high tax rate

The Act introduces progressive taxation. Consequently, if the advertising revenue falls between HUF 500 million and HUF 5 billion the tax rate is 1percent; where the amount of revenue is over HUF 20 billion the tax rate can reach 40percent.

Tight deadline for payment

The Act comes into force 31 days after its promulgation and taxes shall be paid immediately thereafter. Accordingly, taxpayers are required to assess and declare this year’s advance taxes until 20 August 2014, and pay those taxes in two equal instalments until 20 August 2014 and20 November 2014, respectively.

 Accordingly, it is shown that as the law takes effect, questions regarding the interpretation of the Act are expected to affect a broad range of taxpayers. In particular, the geographical scope, the issue of jurisdiction and the purchase and lease agreements of properties used for advertising purposes are all issues which will undoubtedly be caught in the crossfire.

If based on the above you are unsure whether you are subject to the advertisement tax and regulatory proceedings under the Act, or what you should pay attention to in terms of advertising as a lessee or owner of real estate or operator of a vehicle, please contact us and our experts will be entirely at your service!