EU And Google Set Court Date On Hungary Advertisement Tax

The European Union ("EU") Court of Justice agreed to hear Google Ireland Limited's ("Google") appeal on June 4, 2019 against a new tax imposed by Hungary that targets companies that generate revenue from advertising in the country. If it remains in effect, companies such as Google will be required to pay an advertisement tax of 7.5% on all revenue generated from advertisements earned from Hungary-based customers or users.

Hungary's Advertisement Tax: A Primer

Below is a high-level timeline summarizing developments associated with Hungary's Advertisement Tax.

Hungary's taxing authority, the National Tax and Customs Administration ("NTCA"), introduced an advertisement tax under the Hungarian Advertisement Tax Act in 2014. The measure taxed companies at progressive rates ranging from 0% to 50% on advertisement sales in Hungary. The advertisement tax targeted companies who generated revenue from advertising, such as media service providers, publishers, advertising media owners and printed materials for advertising purposes. Large multinationals such as Facebook, Google and Amazon were specifically subject to this new tax. On March 2015, the European Commission began an investigation into whether the advertisement tax complied with EU state aid rules. Specifically, the European Commission was concerned that the progressive tax rates based on advertisement sales level gives smaller companies an unfair competitive advantage. The group made a separate decision prohibiting the NTCA from applying progressive tax rates until it finishes its assessment.1 The NTCA made amendments to the advertisement tax by reducing the upper range of tax rates to 5.3% (instead of 50%). However, the progressive rates based on advertisement sales still existed. On December 2016, the European Commission issued a decision stating that the amended advertisement tax was in violation of EU state aid rules because there was no objective justification for the differences in tax rates. Effective July 1, 2017, the Hungarian Parliament passed legislation that applied an advertisement tax of 7.5% for taxpayers with sales revenues from advertising exceeding HUF100 million (US$ 0.34 million). Companies with less than that amount were exempt from the new tax. The ruling also requires non-Hungarian companies to register as a taxpayer in Hungary and prove compliance with the new tax or face significant tax penalties. The Hungarian Parliament referred to this new legislation as the...