Equity
Hungary's advertising tax seen designed specifically for RTL, takes its toll on group
A government source told a local paper that the levy was designed specifically for RTL Klub, as it refuses to promote a pro-Fidesz line. The cabinet now plans to raise the upper rate of the tax, which will hit only RTL, given it is the only media company in Hungary that has to pay the highest rate (40% of its turnover). RTL Group's management said today they are "determined to pursue all options to protect the Hungarian assets against the effects of this new regulation."
In the third quarter of 2014, reported revenue for RTL Group was stable at EUR 1,259 million (Q3/2013: EUR 1,257 million), while reported EBITA was EUR 160 million (Q3/2013: EUR 161 million).
The group’s German operation performed well in terms of revenues (+7.8% yr/yr), but the French operation and a weaker result at the group’s television broadcast division offset this.
“While visibility on the important fourth quarter still remains limited and given the facts that the economic environment in France remains difficult for RTL Group’s local TV and radio operations, that FremantleMedia faces continued pressure on volumes and prices and that the new advertising tax in Hungary will strongly reduce the profitability of RTL Hungary, RTL Group confirms its outlook for the full year 2014, communicated end of August at the occasions of the Group’s half-year financial results," the group said in its earnings report today.
“The Group assumes a slight decrease in full-year revenue. For the full-year EBITA, RTL Group expects a more significant decrease compared to the revenue decline," it added.
RTL Hungary
The Hungarian net TV advertising market grew by an estimated 2.9% in the first nine months of 2014. Total consolidated revenue of RTL Hungary was up to EUR 68 million (January to September 2013: EUR 67 million).
Due to the impact of the new advertising tax, RTL Group has been forced to impair its total goodwill on RTL Hungary.
In addition, RTL Group also had to impair a number of assets under IFRS rules. Specific impairments recorded against the EBITA of RTL Hungary amounted to EUR 2 million. Despite these impairments, RTL Hungary reported an EBITA of EUR 6 million (January to September 2013: EUR 8 million).
Advertising tax in Hungary
On 2 June 2014, a new advertising tax was submitted to the Hungarian Parliament and was subsequently adopted via an accelerated procedure on 11 June 2014. On 4 July 2014, the Hungarian Parliament adopted several amendments to the tax. The new revised tax came into force on 15 August 2014 with the first payments, in two equal instalments, under this new regime to be made on 20 August and 20 November 2014 respectively.
The tax is steeply progressive with rates between nil to 40%, and is calculated, in general, on the net revenues derived from advertising plus the margins which the sales houses affiliated to the taxpayers charge to their customers.
The tax base will be calculated by aggregating the tax bases of affiliated undertakings. As a result, entities belonging to a group of companies are taxed at higher tax rates than independent legal entities.
“RTL Group’s management are determined to pursue all options to protect the Hungarian assets against the effects of this new regulation," the group said in its earnings report.
“Nevertheless, in accordance with IFRS guidance, the Group has assumed that the impact of this new advertising tax on RTL Group’s Hungarian business continues throughout the planning period. RTL Group has also assumed that the Hungarian business is a going concern," it added.
Rate hike aimed directly at RTL
According to the latest proposal by the cabinet, the top rate of the advertising tax would be raised to 50% next year.
Hungarian daily newspaper Népszabadság has learned that the leadership of the ruling Fidesz party agreed that it was time to punish RTL Klub again. One of the senior politicians of the party said they were turning up the heat on RTL for the broadcaster has been targeting leading Fidesz officials and their family members, whereas the party never wanted to interfere with the management of the company. And this, the source said, cannot stay this way without consequences.
The hike to the upper rate of the tax would confirm what we have been saying from the beginning: the tax was designed specifically against RTL Klub and its objective is to drive the group out of Hungary, Andreas Meier, spokesman for RTL Group’s Luxembourg centre, told the paper. He added that this move would also deepen the group’s concerns about the freedom of press in Hungary. Péter Kolosi, programming director at the Hungarian channel, said it is clearly an attack against RTL Klub and the freedom of the press; the government wants to bury the largest commercial television channel of the country.
Brussels is looking into the tax as well
RTL Group has already put in a complaint with the European Commission over the advertising tax. The government said the tax remains even if it has to go to court over it.
Two MEPs who turned to the EU executive in early August with three questions about the advertising tax, said the new levy is "distorting the Hungarian media market by its discriminatory nature."
Neelie Kroes, Commissioner for Digital Agenda, responded in mid-September that the EC would answer these written questions, "in particular as regards the aspect of media freedom and pluralism as well as freedom of establishment (and/or of services)."
"The Commission is also assessing the compliance of the advertising tax law with state aid rules," she added on 12 September.
A few days later, Dirk Gerkens, Chairman-CEO of RTL Klub, owned by Europe’s largest television channel and radio station network RTL Group, told journalists that exit from Hungary is not an option for them. RTL was still working on a legal strategy but it remains confidential, he added. Gerkens also said he was perplexed about the government’s concerns that commercial TVs pass on the distribution fee.
"RTL is one of the few channels in Hungary not simply promoting a pro-Fidesz line; it is hard to see that the goal is anything other than to drive them out of Hungary," said Kroes said in late July.
"The Hungarian Government does not want a neutral, foreign-owned broadcaster in Hungary; it is using an unfair tax to wipe out democratic safeguards, and see off a perceived challenge to its power," she added.
Directorates examining ad tax
The Directorate-General for Competition is also looking into Hungary’s advertising tax on suspicion of illegal state aid. The Directorate-General for Taxation and Customs Union has already requested information from the Hungarian authorities on the levy at the end of August on suspicion of discrimination against foreign media companies in Hungary, BruxInfo reported earlier this week.
The cabinet has 70 days to respond (from 21 August), so the deadline expires in early November. After reviewing the answers the Commission will decide on further action, including whether or not to open infringement proceedings against Hungary over this issue, the portal added.
The Directorate-General for Competition asked detailed information on the advertising tax from Hungarian authorities in early August on concerns that the new levy may not be in harmony with rules on state aid. If one of the companies in the same media service category (in this case RTL Klub) is subject to a much higher tax rate than its rivals, the latter could essentially be given illegal state aid. In order to do away with such a situation the differential treatment between the tax subjects would need to be eliminated, either by reducing the excessive tax of that one company or by adjusting the burden of the others to this one.
BruxInfo learned in mid-October that Hungarian authorities have already responded to the inquiry sent on 8 August.
The group’s German operation performed well in terms of revenues (+7.8% yr/yr), but the French operation and a weaker result at the group’s television broadcast division offset this.
“While visibility on the important fourth quarter still remains limited and given the facts that the economic environment in France remains difficult for RTL Group’s local TV and radio operations, that FremantleMedia faces continued pressure on volumes and prices and that the new advertising tax in Hungary will strongly reduce the profitability of RTL Hungary, RTL Group confirms its outlook for the full year 2014, communicated end of August at the occasions of the Group’s half-year financial results," the group said in its earnings report today.
“The Group assumes a slight decrease in full-year revenue. For the full-year EBITA, RTL Group expects a more significant decrease compared to the revenue decline," it added.
EBITA
EBITA represents earnings before interest and taxes excluding impairment of goodwill and of disposal group, and amortisation and impairment of fair value adjustments on acquisitions of subsidiaries, impairment of investments accounted for using the equity method, re-measurement of earn-out arrangements, and gain or loss from sale of subsidiaries, other investments and re-measurement to fair value of pre-existing interest in acquiree.
RTL Hungary
The Hungarian net TV advertising market grew by an estimated 2.9% in the first nine months of 2014. Total consolidated revenue of RTL Hungary was up to EUR 68 million (January to September 2013: EUR 67 million).
Due to the impact of the new advertising tax, RTL Group has been forced to impair its total goodwill on RTL Hungary.
In addition, RTL Group also had to impair a number of assets under IFRS rules. Specific impairments recorded against the EBITA of RTL Hungary amounted to EUR 2 million. Despite these impairments, RTL Hungary reported an EBITA of EUR 6 million (January to September 2013: EUR 8 million).
Advertising tax in Hungary
On 2 June 2014, a new advertising tax was submitted to the Hungarian Parliament and was subsequently adopted via an accelerated procedure on 11 June 2014. On 4 July 2014, the Hungarian Parliament adopted several amendments to the tax. The new revised tax came into force on 15 August 2014 with the first payments, in two equal instalments, under this new regime to be made on 20 August and 20 November 2014 respectively.
The tax is steeply progressive with rates between nil to 40%, and is calculated, in general, on the net revenues derived from advertising plus the margins which the sales houses affiliated to the taxpayers charge to their customers.
The tax base will be calculated by aggregating the tax bases of affiliated undertakings. As a result, entities belonging to a group of companies are taxed at higher tax rates than independent legal entities.
“RTL Group’s management are determined to pursue all options to protect the Hungarian assets against the effects of this new regulation," the group said in its earnings report.
“Nevertheless, in accordance with IFRS guidance, the Group has assumed that the impact of this new advertising tax on RTL Group’s Hungarian business continues throughout the planning period. RTL Group has also assumed that the Hungarian business is a going concern," it added.
Rate hike aimed directly at RTL
According to the latest proposal by the cabinet, the top rate of the advertising tax would be raised to 50% next year.
Hungarian daily newspaper Népszabadság has learned that the leadership of the ruling Fidesz party agreed that it was time to punish RTL Klub again. One of the senior politicians of the party said they were turning up the heat on RTL for the broadcaster has been targeting leading Fidesz officials and their family members, whereas the party never wanted to interfere with the management of the company. And this, the source said, cannot stay this way without consequences.
The hike to the upper rate of the tax would confirm what we have been saying from the beginning: the tax was designed specifically against RTL Klub and its objective is to drive the group out of Hungary, Andreas Meier, spokesman for RTL Group’s Luxembourg centre, told the paper. He added that this move would also deepen the group’s concerns about the freedom of press in Hungary. Péter Kolosi, programming director at the Hungarian channel, said it is clearly an attack against RTL Klub and the freedom of the press; the government wants to bury the largest commercial television channel of the country.
Brussels is looking into the tax as well
RTL Group has already put in a complaint with the European Commission over the advertising tax. The government said the tax remains even if it has to go to court over it.
Two MEPs who turned to the EU executive in early August with three questions about the advertising tax, said the new levy is "distorting the Hungarian media market by its discriminatory nature."
Neelie Kroes, Commissioner for Digital Agenda, responded in mid-September that the EC would answer these written questions, "in particular as regards the aspect of media freedom and pluralism as well as freedom of establishment (and/or of services)."
"The Commission is also assessing the compliance of the advertising tax law with state aid rules," she added on 12 September.
A few days later, Dirk Gerkens, Chairman-CEO of RTL Klub, owned by Europe’s largest television channel and radio station network RTL Group, told journalists that exit from Hungary is not an option for them. RTL was still working on a legal strategy but it remains confidential, he added. Gerkens also said he was perplexed about the government’s concerns that commercial TVs pass on the distribution fee.
"RTL is one of the few channels in Hungary not simply promoting a pro-Fidesz line; it is hard to see that the goal is anything other than to drive them out of Hungary," said Kroes said in late July.
"The Hungarian Government does not want a neutral, foreign-owned broadcaster in Hungary; it is using an unfair tax to wipe out democratic safeguards, and see off a perceived challenge to its power," she added.
Directorates examining ad tax
The Directorate-General for Competition is also looking into Hungary’s advertising tax on suspicion of illegal state aid. The Directorate-General for Taxation and Customs Union has already requested information from the Hungarian authorities on the levy at the end of August on suspicion of discrimination against foreign media companies in Hungary, BruxInfo reported earlier this week.
The cabinet has 70 days to respond (from 21 August), so the deadline expires in early November. After reviewing the answers the Commission will decide on further action, including whether or not to open infringement proceedings against Hungary over this issue, the portal added.
The Directorate-General for Competition asked detailed information on the advertising tax from Hungarian authorities in early August on concerns that the new levy may not be in harmony with rules on state aid. If one of the companies in the same media service category (in this case RTL Klub) is subject to a much higher tax rate than its rivals, the latter could essentially be given illegal state aid. In order to do away with such a situation the differential treatment between the tax subjects would need to be eliminated, either by reducing the excessive tax of that one company or by adjusting the burden of the others to this one.
BruxInfo learned in mid-October that Hungarian authorities have already responded to the inquiry sent on 8 August.
