Hungary was one of the first countries in the European Union that imposed tax on digital advertisement in the recent years. The first version of the Hungarian Advertisement Tax Act entered into force in 2014 and it applies to the publication of advertisements in media outlets, in Hungarian press products, on outdoor advertising media, on any vehicle, printed material or real estate and on the Internet, mostly in Hungarian.
The first version of the law aimed at increasing the tax burden of RTL Klub, the biggest commercial broadcaster in the country, with a coverage that is highly critical of the government. One of the main problems of the law was that companies were taxed at a rate depending on their advertisement revenue and consequently a higher turnover entailed a considerably higher progressive tax rate.
The European Commission stated that it was a discrimination against certain media companies and provided advantages to other companies (one of these was TV2, the other big commercial broadcaster close to the government, that had lesser revenue than RTL Klub). It was against the EU state aid rules, therefore the Commission suspended the application of the new tax rule and called upon Hungary to eliminate the discrimination. After several amendments a new version of the law entered into force in 2017 and it set a simpler, non-discriminatory tax rate. Under the new rules, undertakings that have less than HUF 100 million advertisement revenue are exempt from the tax, and above this threshold the rate is 7.5% of the tax base.
Professional organisations, for example the Hungarian Advertisement Association, the Hungarian member organisation of Interactive Advertising Bureau and The Hungarian Publishers’ Association protested against the new rule as the higher tax rate considerably reduces the profitability of the media and the advertising industry. According to these organisations, the undertakings in the Hungarian advertisement industry have to operate in strong global competition with global actors like multinational digital companies and the new tax causes great losses to them. Although the Hungarian government has declared several times that the fair, common share of tax burdens of the digital companies is of high importance, they still have not managed to enforce it, the protesting organisations claim.
And they are correct in claiming so, as the big tech companies like Google and Facebook have not paid their share of the Hungarian advertisement tax since the law entered into force. The companies have avoided paying tax by not registering themselves as publishers of advertisements, while their online advertisement market share in Hungary increased to 55 per cent by 2018 (in 2008 it was only 17 per cent). The sum of their unpaid tax was around HUF 17 bn in 2017 according to the estimation of a Hungarian news site.
In the course of the EU-level consultations the Hungarian government has supported the introduction of an international digital tax for years. However it appears that the tax avoidance problem of the digital industry cannot be solved on the EU-level. For it to be effective, a global solution should be implemented.
Read our briefing (in Hungarian) about the topic here.