The sanctions regime in connection with Hungary’s advertising tax is incompatible with EU law, the Luxembourg court ruled in a case concerning Google. In January 2017, Hungary’s tax authority (NAV) fined Dublin-based Google Ireland for failing to register with the authorities regarding the advertising tax system. The law states that a first offence carries a fine of ten million forints (EUR 30,000) followed by a daily fine of three times the previous amount, capped at 1 billion forints.
Google first took its case to the Metropolitan Court of Administration and Labour, claiming the law was discriminatory and breached the EU principle of freedom to provide services.
The EU Court of Justice agreed that a state can levy a tax on a company from another EU member state without breaching the principle of freedom to provide services under EU law, but it took issue with the daily imposition of successive fines, and the cumulative amount reaching millions of euros, without giving the company time to comply with their obligations. Hungary’s system allows significantly higher fines for breaching the rule to register than other fines, the court said, adding a difference in treatment was disproportionate and therefore constituted a restriction on the freedom to provide services.
The finance ministry said in reaction the ruling made 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.