Audi Reaches Tax Deal With Hungary

by Ulrika Lomas, Tax-News.com, Brussels

09 November 2006

Audi, the major German car manufacturer, has reportedly reached an agreement with the Hungarian government on the issue of taxation that will safeguard its substantial investments in the country.

While Prime Minister Ferenc Gyurcsany has said that no company or individual could be exempted from the so-called 'solidarity tax," Hungary's Nepszabadsag newspaper reported on Wednesday that the government will reduce the solidarity tax base for companies which have research and development expenditure.

Audi was unhappy at having to pay the new 4% 'solidarity tax', and had threatened to pull out of the country unless given a concession by the government.

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.

Audi, part of Volkswagen, Europe's largest carmaker, makes a significant contribution to Hungary's economy. Employing more than 5,200 people at its plant near the Austrian border, the firm accounted for 8.5% of Hungary's exports and 4.5% of its gross domestic product in 2005.

In total, the company has invested about EUR3 billion (US$3.83 billion) in Hungary since 1994, while its annual investment currently stands at about EUR250 million. It also has plans to more than double its output from the Hungarian plant to 50,000 units.

The solidarity tax was introduced on September 1 as part of a 'fiscal austerity' package designed to steer the economy towards integration with the eurozone. The tax was expected collect HUF150 billion (US$730 million) in revenues in 2007, but the new move will cost the Hungarian state up to HUF5 billion.

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