EC Investigates Hungarian Tax-Exemptions For MOL

by Ulrika Lomas, Tax-News.com, Brussels

15 January 2009

The European Commission has opened an in-depth investigation to establish whether an agreement between the Hungarian government and the Hungarian oil and gas company MOL infringes state aid rules.

This agreement exempts MOL from the recent increase in mining fees due on revenues from hydrocarbons exploitation. The investigation will allow interested parties to comment on the measure under scrutiny.

EU Competition Commissioner Neelie Kroes said: “The Commission is concerned that MOL may be favoured vis-à-vis its competitors. We have to make sure that no unfair advantage is granted to any company at the expense of Hungarian taxpayers."

In November 2007 the Commission received a complaint regarding an alleged state aid measure put in place by Hungary in favour of MOL. The measure under investigation is an agreement dating back to 2005 between MOL and the Hungarian government, according to which MOL's mining royalty payments on extracted hydrocarbons remain fixed for the majority of its hydrocarbon mining fields until 2020, whereas the mining fee was increased considerably by an amendment of the Hungarian Mining Act in early 2008.

The Commission is concerned that the combined effect of the prolongation agreement and the subsequent modification of the Mining Act leads to an exemption from taxes for MOL that its competitors have to pay, thereby conferring it an unfair competitive advantage.

In its preliminary assessment, the Commission found that the measure may constitute state aid and found no grounds on which it could be compatible with the single market, since it would only relieve MOL from a charge it would normally have to bear. Such operating aid is in principle prohibited by EU state aid rules. The opening of the formal investigation procedure will enable the Commission to deepen its assessment of the measure.

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