Based on today’s judgment of the Court of Justice of the European Union, Google could not have avoided its tax payment liability in relation to the Hungarian advertising tax. The Court ruled that the legislation regarding the submission of tax declarations is not contrary to the EU principle of the freedom to provide services. At the same time, the method by which fines are imposed due to non-compliance with the obligation to submit tax declarations leads to a breach of EU law.

Before the case was instituted, Google denied that it published any advertising on the Internet, and therefore held the view that it was not required to register with the tax authority as a taxpayer for the purposes of the advertising tax. The tax authority imposed a total fine of one billion forints on the company for non-compliance.

In today’s decision, the Court ruled that the special obligation to submit tax declarations prescribed in the advertising law, which was also applicable to Google, was in harmony with EU law. Neither does it constitute a breach that the tax authority can impose a fine for non-compliance. The Court only found the method of the imposition of the fine objectionable; based on this method, the tax authority may determine the amount of the fine in an amount that increases daily. The Court also found it objectionable that in the event of compliance, the cancellation of a fine imposed earlier is only a possibility, not an obligation.

The Court’s judgment released today confirms that Google is subject to paying the advertising tax, should have submitted tax declarations for the purposes of the advertising tax and should have paid an advertising tax. In the context of the rules prescribing the obligation to submit tax declarations for the purposes of the advertising tax, it stated that ‘it could not be found that there had been any difference in treatment capable of constituting a restriction on the freedom to provide services’.

This judgment of the Court is in harmony with its decisions also adopted today in the Vodafone and Tesco cases as each of the judgments was passed in the spirit of fair and just taxation. In the cases of Vodafone and Tesco, a legislative act resulting in more proportionate and higher tax liabilities has been confirmed. The judgment adopted in the Google case involves multinational companies engaged in taxable activities in the absence of actual residence in the system of taxation.

(Ministry of Finance)