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EU Court: Tax on Google Lawful While Hungarian Penalty System Is Not

Hungary Today 2020.03.04.

The system of penalties relating to the Hungarian tax on advertising is not compatible with EU law, the Luxembourg-based Court of Justice of the European Union decided on Tuesday. However, in the judgement, the court also found that EU law does not preclude foreign suppliers of advertising services from being subject to an obligation to submit a tax declaration in relation to that tax.

By law, Hungary’s tax on advertising applies to any person who publishes paid advertisements mainly in Hungarian or mainly on internet pages that are in Hungarian, irrespective of place of residence. Non-resident taxpayers must register within 15 days of commencing activity subject to the tax, or face a fine that may accrue after continued non-compliance, to up to HUF 1 billion (EUR 3.1 m), an amount as much as 2,000 times more than the penalty for companies established in Hungary.

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In 2017, Hungary’s National Tax and Customs Authority (NAV) fined Dublin based Google after it had failed to register with the Hungarian authorities. Google was subsequently fined an initial HUF 10 million (EUR 31,000), followed by daily fines that were triple the original fine, bringing the total amount to the maximum HUF 1 billion.

Google then filed a lawsuit at the Budapest Administrative and Labor Court against the procedure, claiming that the Hungarian legal guidelines on which they are based are discriminatory, and violate the principle of freedom to provide services. The case continued in the EU court.

In its judgement, the Court of Justice held that the principle of freedom to provide services does not preclude Hungarian legislation, which imposes an obligation to submit a tax declaration on suppliers of advertising services established in another Member State for the purposes of their liability to the Hungarian tax on advertising.

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However, the Court also held that the principle of freedom to provide services precludes Hungarian legislation, which fines such suppliers of services for non-compliance with the obligation to submit a tax declaration in a series of fines issued within several days, potentially amounting to several million Euros without the competent authority. This gives those suppliers of services the time necessary to comply with their obligations or the opportunity to submit their observations, or having themselves examined the seriousness of the infringement before making a final decision, fixing the total amount of those fines.

According to the Court, however, the system of penalties enables significantly higher fines to be issued than the system of fines provided for in the event of infringement by a Hungary based company.

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Furthermore, neither the amount of the fines imposed under that system, nor the deadlines within which to pay those fines, are as stringent as those applied under the system of penalties laid down by the Law on the taxation of advertisements.

This difference in treatment, which it considers disproportionate and therefore unjustified, constitutes a restriction on the freedom to provide services, the court concluded.

Gov’t: ruling proves not even international corporations can evade taxation

Commenting on the ECJ’s ruling, Justice Minister Judit Varga said the ruling against Google Ireland, showed that not even international corporations can evade taxation.

The Finance Ministry said in response that Tuesday’s ruling made it clear that Google should not have avoided paying tax in line with the Hungarian law on advertising, and the court only objected to cumulative sanctions imposed when the company failed to register for tax payment. The ruling concerning Google upholds the principle that multinationals operating in Hungary can be drawn into the system of common burden-sharing even if they do not actually have facilities based in Hungary, it added.

Featured photo via Pixabay

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