Hungary insists telecom tax complies with EU law

Fri Dec 2, 2011 4:57am EST

* EU has threatened court action over $800 million tax

* Hungary says will not abolish tax

BUDAPEST Dec 2 (Reuters) - Hungary has told the European Commission that a special telecommunications sector tax levied for 2010-2012 did not break EU rules and will not be abolished, the Foreign Ministry said on Friday.

Hungary uses the telecom tax, and a range of other windfall taxes on the retail, energy and financial sectors, to shore up its budget and comply with the EU's budget deficit ceiling of 3 percent of gross domestic product.

The Commission has said the telecom tax, worth 180 billion forints ($797 million) over three years, was illegal and it would take Hungary to the European Court of Justice unless it complied with the EU's rules.

In a statement to Reuters, the Foreign Ministry said it sent a letter on Nov. 29 to Brussels in which it insisted that the tax did not run counter to EU law.

"The sectoral special tax does not aim to influence corporations' activities or the conditions thereof, but a temporary extra material contribution from taxpayers who can bear taxes above and beyond the general tax requirement in order to improve the balance of the budget," the ministry said.

The taxes, as well as other unorthodox policies, have helped undermine market confidence in the right-of-centre government, prompting it to seek a new financial assistance deal from international lenders, including the EU, last month.

The policies also contributed to a downgrade of Hungary's debt to non-investment category by Moody's last week, after which the government said it would work with the lenders closely to restore confidence.

Hungary's Magyar Telekom, a unit of Deutsche Telekom paid 27 billion forints in the special tax last year. Other companies in the telecoms sector include Vodafone and Telenor.

Special taxes have also been levied on banks, including the local affiliates of Austrian lenders Erste Bank and Raiffeisen as well as energy companis including the domestic oil sector leader MOL.

($1 = 225.7535 Hungarian forints) (Reporting by Marton Dunai; Editing by Erica Billingham)

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