Hungary: After passing a special tax imposed on the media legal gaps came to the focus the legislature aims to close rapidly before the law becomes effective.
The legislature recently adopted an act on advertising tax, burdening the media sector of the Hungarian market with a specific tax applied to advertising.
- Tax target
This sharply-criticized regulation would tax media services, publishers, outdoor ad carriers and publishers of internet advertising on their net annual advertising revenue. Although the legislator aimed to include foreign enterprises among the taxpayers, the definition of tax base left an escape for enterprises with no branches in Hungary. So through amending the definition of tax base the act was amended even before coming into effect.
- Extent of the tax
The law sets the level of tax in several bands, so up to half a billion forints net revenue the tax rate is 0% but starts growing progressively. In the highest band a 40% tax rate will apply to a tax base exceeding 20 billion forints. In order to prevent taxpayers cutting their obligation by splitting taxable targets, in the case of joint enterprises the tax rate will be set in line with the combined tax base of associated companies. For enterprises operating at a loss the legislator allows reduction of the tax base, although under the latest modification only if profit was negative in 2013.
In the case of advertisers on their own behalf, since there is no revenue, the tax base will be the costs arising directly in connection with releasing ads instead of annual net revenue.
- Payment obligation of advertising customers
Another gap-filling amendment passed before the act becomes effective is that the customer of an ad might end up being liable for tax if the advertiser fails to state (e.g. on the invoice) that it will meet the tax payment obligation. Through this provision the legislation aims to ensure that joint liability may not be avoided with regard to ads appearing on social/search websites having a foreign origin. The law establishes the threshold generating a payment obligation at 2.5 million forints a month thereby releasing small and medium sized enterprises; while private persons merely publishing small ads are also exempt from tax.
Note that those having no tax obligation need not file a tax declaration.
The new regulation has come to the attention of the European Commission, which is currently examining compliance of the act with EU norms from the perspective of its effect on freedom of the press and on market competition.