Tax Connect Flash | Hungary: telecoms tax facing European Commission challenge

The European Commission has begun infringement proceedings against Hungary over its special tax on the telecoms sector.

The Commission is concerned that the tax is incompatible with EU telecoms rules, which require specific charges on telecoms operators to be directly related to covering the costs of regulating the telecoms sector.

The special tax was introduced in October 2010 for the retail commerce, telecoms and energy sectors. The scope and rate of the tax varies according to the sector and revenue: telecom operators pay between 0% and 6.5% of their gross revenues (excluding VAT).

Operators have already paid the tax for 2010, which is expected to generate annual revenues of c. €220 million for the Hungarian government.

The first step in the proceedings is for the Commission to send a letter of formal notice to the Government requesting information about the tax.

The Government has two months to reply to the letter. If its concerns are not allayed by the Government’s reply (or if no reply is received), the Commission may issue a reasoned opinion requiring compliance with EU law.

In the case of persistent non-compliance, the Commission may refer the case to the ECJ, as it has done recently for similar telecoms taxes in France and Spain.