EU Asks Hungary To End Discriminatory Tax Incentives For R And D

By Ulrika Lomas, for LawAndTax-News.com, Brussels

04 April 2008

The European Commission has formally requested that Hungary change tax law provisions which limit the granting of a tax incentive to taxpayers who engage in research or development activities performed on premises located in Hungary.

The EC argues that the provisions are incompatible with the freedom to provide services as guaranteed by Article 49 of the EC Treaty and Article 36 of the EEA Agreement. The request takes the form of a reasoned opinion, which is the second step of the infringement procedure provided for in Article 226 of the EC Treaty.

If there is no satisfactory reaction to the Reasoned Opinion within two months, the Commission may decide to refer the matter to the European Court of Justice.

Under Hungarian Law, basic research, applied research or experimental development services performed on premises managed by a research research facility founded by a Hungarian institution of higher education or the Hungarian Academy of Sciences, are treated more favourably than similar R&D activities performed on similar premises located in other EU Member States or EEA/EFTA countries.

As a result, these provisions discourage Hungarian companies and entrepreneurs from carrying out their R&D activities in other EU Member States or EEA/EFTA countries, and therefore impede the free provision of services as guaranteed by Article 49 of the EC Treaty and Article 36 of the EEA Agreement.

The Commission's opinion is based on the EC Treaty as interpreted by the European Court of Justice in its judgment of March 10th 2005, in Case C-39/04, Laboratoires Fournier SA.

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