The ECJ has found the system of penalties in Hungary’s Advertising Law to be incompatible with EU treaties.
Background: In 2017, the Hungarian Tax and Customs Authority fined Google a total HUF10bn (EUR2.96m) for failure to comply with an obligation to register for the purposes of the advertisement tax set out in the country’s ‘Law on the taxation of advertisements’ of 2014. The authority stated that it had found that during 2016 Google had carried on activities that were subject to the advertisement tax, but had failed to register the commencement of a taxable activity in accordance with the law. Google appealed to the administrative courts, requesting that the decision be annulled. The case ended at the European Courts of Justice (ECJ) in July 2018.
The ECJ rules against the penalty: On 3 March 2020, the ECJ published its ruling on the matter, stating that the penalties systems of the Hungarian law is incompatible with EU law because the daily fines (which tallied up to several million euros), were issued without giving the company time to comply with their obligations or the opportunity to submit their observations, or having itself examined the seriousness of the infringement, before adopting its final decision. The ECJ also notes that the amount of the fine that would be imposed on suppliers of advertising services established in Hungary, who failed to comply with a similar obligation, would be significantly lower than the one ruled by the authority on Google. All this, in the court’s view, is incompatible with the freedom to provide services set out in Article 56 of the Founding Treaty of the EU. That freedom precludes any national rules which may make the provision of services between member states more difficult than the provision of services purely within a member state.
The tax stays: While the ECJ ruled against the way penalties are set out, it did not strike down the broader set of obligations imposed through the advertising law, and confirmed that states can oblige companies to register or submit a tax declaration, as long as this is not done in a discriminatory way for companies based outside the relevant state.
