The advertising tax is coming (again)
First, it is important to point out that the advertising tax has not actually been abolished earlier, the tax rate has been reduced to 0% of the tax base from 1 July 2019 to 31 December 2022. This temporary suspension ends at the end of 2022 and the tax is going to be reintroduced from 1 January 2023. Therefore, this tax is not regulated as an “extra-profit” tax in the government decree on the extra-profit tax (which was established on June 4th). We are going to review the history, essential elements, and parties of the advertising tax.
We are in the middle of the tax year, so there may be, and will certainly be, changes until January 2023, so we do not want to get lost in the details of the advertising tax. The discussed law is the Act XXII of 2014 on the advertising tax (hereinafter: the Act).
The suspension and the infringement procedure
The Parliament passed the Act in 2014, in which the tax rate was initially between 0-50%, depending on the size of net sales revenues. Taxable entities who did not achieve a turnover of HUF 100 million were exempt from the tax, but in other cases they charged taxable entities a very high tax rate. In the latter case, a tax of 40% had to be paid to the budget for net sales revenues more than HUF 20 billion, which later became 50%. In 2016, it was one of the tax-related problems which was seen by the European Commission. The other argument of the Commission – concerning the advertising tax – was that: since it was possible to reduce the basis of the advertising tax by 50% of the loss carry forward, the difference constituted as state aid and ordered the reimbursement of those benefits.
In accordance with European Commission Resolution nr C (2016) 6929 final, for the tax years ended up to 30 June 2017, the tax declared and paid by a taxable entity under the Act was deemed to be an overpayment and was refunded. Hungary decided to refer the matter to the Court of Justice of the European Union and in March 2021 the Court found that the Hungarian advertising tax did not violate EU rules on state aid.
The Act has been amended several times in the meantime, with the tax rate eventually becoming uniformly 7,5% of net sales. With effect from 24 July 2019, the advertising tax has been suspended in connection with the European Commission’s infringement procedure.
The taxable activities and the taxable entities
According to the Act, the followings are taxable activities. Publication of advertisements for consideration:
- in the media service,
- in the press product,
- on the outdoor advertising medium,
- on a vehicle, printed matter, real estate,
- on the Internet, predominantly in Hungarian.
The taxable entity, regardless of its residency status:
- a media content provider established in Hungary,
- a media service provider that makes Hungarian-language media content available in Hungary for at least half of its daily programming time,
- a person or organization who uses outdoor advertising media, vehicle, form, or property for advertising purposes,
- the publisher of the advertisement in the case of an online advertisement.
The tax base and the tax rate
The tax is based on the margin between the net sales revenues of the advertising publisher and the advertising sales agency. The tax is based on the part of the total monthly consideration exceeding HUF 2,500,000, in the case of a customer.
The tax rate for the part of the tax base exceeding HUF 100 million is 7,5% in the case of advertising publishers (the part of the tax base not exceeding HUF 100 million is still exempt from the tax). In the case of the customer the tax rate is 5% of the monthly tax base for the part of the tax base exceeding HUF 2,500,000.
The advertising publisher must file and pay the tax annually by the last day of the fifth month following the tax year. Taxable entities who are required to pay a tax advance, it must be paid twice a year.
Procedure issues, as well as other details, will be worth talking about once we know for sure the final content of the law. As soon as we know these details, we will publish them on our website.