Economy
Law firm finds loophole in Hungary's new advertising tax
In most cases the subjects of special/sectoral taxes in Hungary are those that are established here. In this regard, the advertising tax intends to use a novel solution, by stipulating that while (i) the subject of the levy are media service providers established in Hungary, (ii) those non-Hungarian service providers will also be obligated to pay the tax which make Hungarian language media content available in the country in at least half of their daily on-air time.
In case of online advertising the publisher of the add will be regarded subject of the tax irrespective whether its domicile is in Hungary or not, reminded Péter Barta, expert at the Jalsovszky Law Firm.He argues that in its current form the law is unfit to tax service providers not established in Hungary. “The base of the advertising tax in case of tax subjects governed by the Act on Accounting is net sales revenues according to the act, whereas in the case of private individuals governed by the Act on Personal Income Tax it is these persons’ revenues without VAT. Hence, if the subject of the advertising tax is not governed either by the Act on Accounting or the PIT Act, it will have no actual tax base and therefore tax payment obligation, either," he explained.
“Regulations allow certain media content providers to conduct their advertising service activities in Hungary via a foreign entity. Accordingly, television programmes in Hungary may be broadcast via a foreign company and, implicitly, there is no need for a Hungarian business to run a Hungarian language portal, either. Due to the above unusual definition of tax subjects such foreign service providers will all remain outside the obligation to pay the advertising tax, even if - from the perspective of the corporate income tax - their establishment is located in Hungary, since they are not governed either by the accounting or the PIT act," Barta summarised his interpretation.
This is a breach on the tax shield, a loophole, but it is unclear how intentional this was, he added.
“It is not impossible, however, that as a consequence media service providers that are already established in Hungary will move their media content providing and advertising activities into foreign companies, thus avoiding the new tax burden," concluded Barta.
In case of online advertising the publisher of the add will be regarded subject of the tax irrespective whether its domicile is in Hungary or not, reminded Péter Barta, expert at the Jalsovszky Law Firm.He argues that in its current form the law is unfit to tax service providers not established in Hungary. “The base of the advertising tax in case of tax subjects governed by the Act on Accounting is net sales revenues according to the act, whereas in the case of private individuals governed by the Act on Personal Income Tax it is these persons’ revenues without VAT. Hence, if the subject of the advertising tax is not governed either by the Act on Accounting or the PIT Act, it will have no actual tax base and therefore tax payment obligation, either," he explained.
“Regulations allow certain media content providers to conduct their advertising service activities in Hungary via a foreign entity. Accordingly, television programmes in Hungary may be broadcast via a foreign company and, implicitly, there is no need for a Hungarian business to run a Hungarian language portal, either. Due to the above unusual definition of tax subjects such foreign service providers will all remain outside the obligation to pay the advertising tax, even if - from the perspective of the corporate income tax - their establishment is located in Hungary, since they are not governed either by the accounting or the PIT act," Barta summarised his interpretation.
This is a breach on the tax shield, a loophole, but it is unclear how intentional this was, he added.
“It is not impossible, however, that as a consequence media service providers that are already established in Hungary will move their media content providing and advertising activities into foreign companies, thus avoiding the new tax burden," concluded Barta.
