Audi Baulks At Hungary's 'Solidarity Tax'

by Ulrika Lomas, Tax-News.com, Brussels

01 November 2006

The first major corporate protest to Hungary's controversial new 'solidarity tax' has come from German car maker Audi, which has threatened to suspend its investment if forced to pay the tax.

According to Hungarian media reports, Audi Chairman Martin Winterkorn is due to discuss the issue with Hungarian Prime Minister Ferenc Gyurcsany during a meeting scheduled for November 10, with the company confident that the two sides will reach a compromise that will preclude the scaling down of Audi operations in Hungary, where it currently employs more than 5,000 people.

It is thought that Audi will table two possible compromise proposals that will reduce its exposure to the tax, which is levied at 4% on company profits and personal income. The first would involve convincing the Hungarians to adopt an investment incentive scheme compliant with EU law. The other proposal would allow the company to offset its R&D spending from the solidarity tax base.

Audi currently benefits from a tax holiday in Hungary which was renegotiated and extended until 2011, after the country acceded to the EU in 2004.

Gyurcsany was quoted by Reuters as stating last week that there will be "no exemptions" to the tax and that companies must share the burden of a recently introduced fiscal austerity package, designed to help Hungary achieve the criteria needed to adopt the euro currency.

However, given that the company is one of Hungary's largest foreign investors, the Audi case will be the first major test of the government's resolve on the issue.

Audi, part of Volkswagen, Europe's largest car manufacturer, has invested about EUR3 billion (US$3.83 billion) in Hungary since establishing there twelve years ago, while its annual investment currently stands at about EUR250 million. It is also Hungary's largest exporter and plans to more than double its output from its plant near the Austrian border to 50,000 units.

Recommended