In September 2019, the European Court of Justice’s advocate general ruled that Hungary’s advertisement tax and associated penalties against Google constituted “an unjustifiable restriction on the freedom to provide services.”

Background on Hungary’s Advertisement Tax

Hungary introduced an advertisement tax in 2014 targeting entities broadcasting or publishing ads, regardless of residence. The tax featured progressive rates based on advertising revenue. In 2017, a special compliance fine up to HUF 1 billion (approximately EUR 3 million) was enacted to encourage registration.

The Google Case

Google’s Irish subsidiary operated subject to this tax but failed to register. Hungarian tax authorities subsequently issued HUF 1 billion in fines. Google challenged the decision before Hungary’s court, which referred the matter to the European Court of Justice.

The advocate general determined that while registration requirements were lawful, the fine’s amount was disproportionate because it could “easily exceed that of the tax it seeks to enforce.”

Key Finding on Territorial Scope

The opinion notably recognized Hungary’s legitimacy in taxing advertisements using Hungarian language, stating that language forms “an important part of national identity” and provides sufficient territorial connection for taxation purposes.

The ruling raises significant questions about national sovereignty versus transnational digital commerce.