Judgments nº T-20/17 of Tribunal General de la Unión Europea, June 27, 2019

• Resolution Date: June 27, 2019
• Issuing Organization: Tribunal General de la Unión Europea
• Decision Number: T-20/17

(State aid - Hungarian tax on the turnover from the broadcasting or publication of advertisements - Progressivity of tax rates - Deduction from the basis of assessment of the tax of 50% of the losses carried forward for companies not generating a profit in 2013 - Decision characterising the measures as aid incompatible with the internal market and ordering its recovery - Concept of State aid - Condition relating to selectivity)

In Case T-20/17,

Hungary, represented by M.-Z. Fehér, G. Koós and E.-Zs. Tóth, acting as Agents,

applicant,

supported by

Republic of Poland, represented by B. Majczyna, M. Rzotkiewicz and A. Kramarczyk-Szaładzińska, acting as Agents,

intervener,

v

European Commission, represented by V. Bottka and P.-J. Loewenthal, acting as Agents,

defendant,

APPLICATION pursuant to Article 263 TFEU seeking annulment of Commission Decision (EU) 2017/329 of 4 November 2016 on the measure SA.39235 (2015/C) (ex 2015/NN) implemented by Hungary on the taxation of advertisement turnover (OJ 2017 L 49, p. 36),

THE GENERAL COURT (Ninth Chamber),

composed of S. Gervasoni, President, L. Madise (Rapporteur) and R. da Silva Passos, Judges,

Registrar: N. Schall, Administrator,

having regard to the written part of the procedure and further to the hearing on 10 January 2019,

gives the following

Judgment

Background to the dispute

1 On 11 June 2014, the Hungarian National Assembly enacted Law No XXII of 2014 on Advertisement Tax (‘the Law on Advertisement Tax’). That law entered into force on 15 August 2014 and introduced a new special tax, applied progressively by bands, on turnover derived from the broadcasting or publication of advertisements in Hungary (‘the advertisement tax’), applied in addition to existing business taxes, in particular corporation tax. During the examination of the Law on Advertisement Tax carried out by the European Commission as part of the monitoring of State aid, the Hungarian authorities stated that the purpose of that tax was to promote the principle of public burden sharing.

2 According to the Law on Advertisement Tax, whoever broadcasts or publishes advertisements is subject to the advertisement tax. Those who make advertisements public (newspapers, audiovisual media, billposters) are, therefore, taxable persons, but not advertisers (for whom the advertising is produced) or advertising agencies who are intermediaries between advertisers and broadcasters or publishers. The taxable amount to which the tax is applied is the net turnover for the financial year generated by the broadcasting or publication of advertisements. The territorial scope of the tax is Hungary.

3 The scale of progressive rates was defined as follows:

- 0% for the part of the taxable amount below 0.5 billion Hungarian forint (HUF) (approximately EUR 1 562 000);

- 1% for the part of the taxable amount between HUF 0.5 billion and HUF 5 billion (approximately EUR 15 620 000);

- 10% for the part of the taxable amount between HUF 5 billion and HUF 10 billion (approximately EUR 31 240 000);

- 20% for the part of the taxable amount between HUF 10 billion and HUF 15 billion (approximately EUR 47 000 000);

- 30% for the part of the taxable amount between HUF 15 billion and HUF 20 billion (approximately EUR 62 500 000);

- 40% for the part of the taxable amount above HUF 20 billion (approximately EUR 94 000 000). (That rate was increased to 50% from 1 January 2015).

4 Taxable persons whose pre-tax profits for the financial year 2013 were zero or negative could deduct from their 2014 taxable amount 50% of the losses carried forward from the earlier financial years.

5 By decision of 12 March 2015, after corresponding with the Hungarian authorities, the Commission initiated the formal investigation procedure for State aid, provided for in Article 108(2) TFEU, in relation to the Law on Advertisement Tax, taking the view that the progressive nature of the tax rate and the provisions on the deduction from the taxable amount of losses carried forward gave rise to State aid. In that decision, the Commission considered that the progressive tax rate differentiated between undertakings with high advertisement revenues (and thus large undertakings) and undertakings with low advertisement revenues (and thus small undertakings), and a selective advantage was thereby granted to the latter based on their size. The Commission was also of the view that the 50% deductibility of losses for undertakings that were not profit making in 2013 granted a selective advantage constituting State aid.

6 In the context of that same decision, the Commission issued a suspension injunction in respect of the measure at issue on the basis of Article 11(1) of Council Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules for the application of Article 108 [TFEU] (OJ 1999 L 83, p. 1).

7 Subsequently, Hungary amended the advertisement tax of its own initiative, without prior notification to, or approval by, the Commission, by Law No LXII of 2015, enacted on 4 June 2015, replacing the scale of six progressive rates from 0 to 50% by the following scale comprising two rates of taxation:

- 0% for the part of the taxable amount below HUF 100 million (approximately EUR 312 000);

- 5.3% for the part of the taxable amount above HUF 100 million.

8 Law No LXII of 2015 also introduced an optional retroactive application back to the entry into force of the Law on Advertisement Tax in 2014. Consequently, a taxable person could decide whether he wished to be subject to the previous rates or the new rates, for his turnover for the previous tax year.

9 The Commission closed the formal investigation procedure by Decision (EU) 2017/329 of 4 November 2016 on the measure SA.39235 (2015/C) (ex 2015/NN) implemented by Hungary on the taxation of advertisement turnover (OJ 2017 L 49, p. 36, ‘the contested decision’). In Article 1 of the contested decision, the Commission concluded that the tax system composed of progressive tax rates and provisions prescribing a reduction in the amount of the tax liability in the form of deduction of losses carried forward for undertakings that were not profit making in 2013, established by Law No XXII of 2014 on Advertisement Tax, including the version of that law as amended on 4 June 2015, constituted State aid, unlawfully put into effect by Hungary, in breach of Article 108(3) TFEU, and was also incompatible with the internal market in the light of Article 107 TFEU.

10 In Articles 2 and 3 of the contested decision, the Commission stated nonetheless that if it met various criteria, certain individual aid granted under that system did not constitute State aid incompatible with the internal market.

11 In Article 4 of the contested decision, the Commission ordered Hungary to recover from the beneficiaries the aid declared incompatible with the internal market.

12 In that regard, the Hungarian authorities had to recover from the undertakings with advertisement turnover in the period from the entry into force of the advertisement tax in 2014 to either the date of its abolishment or replacement by a system which would be fully in line with State aid rules, the difference between: the amount of tax (1) that those undertakings should have paid under the application of a reference system in line with State aid rules (with a single tax rate of 5.3% unless another value was chosen by the Hungarian authorities, without the deduction of any losses carried forward), and the amount of tax (2) that the undertakings were liable to pay or had already paid. Consequently, if the difference between amount of tax (1) and amount of tax (2) was positive, the amount of aid had to be recovered including interest as of the date the tax was due. The Commission stated, however, that there would be no need for recovery if Hungary abolished the tax system at issue with retroactive effect from the date of its entry into force in 2014. This should not prevent Hungary from introducing for the future, for example from 2017, a tax system which was not progressive and did not differentiate between economic operators subject to the tax.

13 In essence, in the contested decision, the Commission for the most part justified characterising the system at issue as State aid in the following manner, in the light of the definition in Article 107(1) TFEU.

14 First of all, as regards whether the measure at issued may be imputed to the State and is financed through State resources, the Commission considered that since the Law on Advertisement Tax was enacted by the Hungarian Parliament, Hungary waived resources it would have had to collect from undertakings with a lower level of turnover (and thus smaller undertakings), if they had been subject to the same level of tax as undertakings with a higher turnover (that is to say larger undertakings).

15 As regards the existence of an advantage, the Commission noted that, just like positive benefits, measures which mitigated the charges normally borne by the undertakings provided an advantage. In the present case, being taxed at a substantially lower tax rate mitigated the charges that undertakings with a low turnover must bear as compared to undertakings with a high turnover and therefore provided an advantage to the benefit of smaller undertakings over larger undertakings. The Commission added that the possibility under the Law on Advertisement Tax for those undertakings that were not profit making in 2013 to deduct from the taxable amount 50% of the losses carried forward also constituted an advantage, since it reduced their tax burden compared to undertakings that could not benefit from that deduction.

16 As to whether the advantages identified favoured certain undertakings (selectivity criterion), the Commission stated that since a tax advantage was at issue, the assessment had to be carried out in several stages. First of all, the reference tax system had to be identified, then it had to be determined whether the measure...