As of February, Hungary Was the Only EU Member State With Taxes on International Digital Corporations

As of February 2021, Hungary officially became the only EU Member State that taxed international digital corporations.

Hungary’s History of Taxing Digital Corporations

Taxing international companies is nothing new for Hungary. In 2014, the country passed a law that taxed any online ads if they appeared on Hungarian sites or were in Hungarian. The company or person managing the advertising space was responsible for paying this tax.

In 2017, the law was amended, expanding its reach. That amendment meant that the Hungarian Tax and Customs Authority could charge estimated taxes on the relevant online ads even if there were no tax returns filed by the company in question. The amendment also meant that if the company managing the ad space did not declare the situation, the Hungarian Tax and Customs Authority could impose a fine.

One of the most notable times that this rule was used was to fine Google. The company was fined one billion forints, which was the equivalent of EUR 2.8 million.

Recent Challenges

Google did not pay the fine without a fight. Instead, the company brought the matter to the Hungarian Labour and Administration Court. That court asked the CJEU to interpret the European Union laws that were relevant.

It wasn’t until early in 2020 that the Court of Justice of the European Union (CJEU) said that the regulations were allowed under EU law. The ruling specifically confirmed the legality of Hungary requiring declarations and fining those who defaulted on the taxes.

The only objection the court had was to how Hungary calculated the fines.

It was in early February this year that the CJEU and the Hungarian Supreme Court, the Kuria, ruled that the law could continue.

Hungary Will Not Be Alone for Long

According to Daily News Hungary, when the law was upheld, Hungary became the only EU Member State that taxes international digital corporations. However, this will not last for long.

The European Commission had already proposed a revenue-based special tax in 2018. That proposal, however, was held in 2019. There have also been other similar proposals in the past. Every international proposal, however, has faced criticism. The United States, in particular, has pressured against these proposals being passed.

Another factor is that the OECD is currently drafting regulations that would serve a similar purpose.

The current proposal from the Oganisation for Economic Co-operation and Development (OECD) does not focus solely on digital corporations. Instead, it would require international companies to pay at least partial income taxes anywhere that users are.

As of March 2021, the Tax Foundation reported that in addition to Hungary, Austria, Poland, Great Britain, Turkey, Italy, France, and Spain have also already implemented a digital services tax. Other countries have also proposed a digital services tax or otherwise expressed interest in one. However, each of these digital taxes is slightly different.

Like Hungary, Austria’s digital tax only taxes revenues made from online advertising. France taxes a larger range, including revenues from targeted advertising, transmitting user data, and more.

Most recently, the European Union is making a strong push for digital taxation. If the European Union were to create a digital tax, documents estimate that this could lead to extra tax income of up to tens of billions of Euros.

The Takeaway

For now, only companies and entities in Hungary and a handful of other countries need to pay taxes on certain types of digital revenue. The tax applies regardless of the residency or passport of the advertiser or company. The European Union and the OECD are both pushing to create some sort of digital tax on directors and companies within their member countries.


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