Decision of The Constitutional Court of Hungary regarding advertisement tax
15 January 2018
The Constitutional Court of Hungary made its decision 31/2017. in which it refused that article 7/B and 7/D of the Act XXII of 2014 on Advertisement Tax’s (referred to as ‘Advertisement Tax Rule’) are against an international treaty and the judicial actions in regards this matter on 6th of December, 2017. According to the regulations of the Advertisement Tax Rule which is also called as Google-tax, NAV decided default penalty in the amount of HUF 1 billion /company for two companies established in Ireland because they do not fulfilled their advertisement tax registration obligation in Hungary. There were judicial review in both case, and there were attempts to prove that these rules are against an international treaty (Convention between the Republic of Hungary and Ireland for the avoidance of double taxation). These judicial initiatives were merged and refused by the decision of The Constitutional Court of Hungary.
Based on the justification, the principles of equal treatment are not breached, because the resident taxpayers are obligated for registration by the Act CL of 2017 on the Rules of Taxation, non-resident taxpayers (in the case of Hungarian taxpaying obligation) are ruled by the Advertisement Tax Rule. The reason behind the regulation of reporting obligation in the questioned rule is to allow non-resident taxpayers to fulfil their obligation in the same way as resident tax payers.
On 12th December 2017, Facebook announced that in the future it will set up a “local sales structure”, in which local revenues will be shown through local companies in the different countries.
As a reminder we note, that the judicial proceeding in connect the advertisement tax, between the European Commission and Hungary seems to be terminated with the decision made by the European Commission on 11th October, 2017. (Case C-204/17. P.(R).) Regarding that the Hungarian National Assembly modified the Advertisement Tax Rule in accordance with the regulation of the EU, the appeal against the connected commission decision has become devoid.
International groups are advised to review their advertisement publication activities in Hungary and to register their involved members to the tax authority, because this is the only way to avoid the above mentioned sanctions.
Resident taxpayers are also recommended to do an internal audit in which all advertisement obligation are explored. In the case of further questions the tax advisory team of BDO Hungary Tax Advisory Ltd. is at your service.