March 22, 2012 / 11:26 AM / 8 years ago

EU takes Hungary to EU court over one-off telecoms tax

BRUSSELS, March 22 (Reuters) - The European Commission referred Hungary to the European Court of Justice on Thursday for applying a one-off tax on the telecommunications sector in violation of EU law, adding to tensions between Budapest and Brussels.

Hungary introduced the measure, along with other windfall taxes, in 2010 in an attempt to reduce its budget deficit to within EU limits. The telecoms tax is designed to raise about $800 million of revenue over three years.

The European Commission, the EU’s executive, twice warned Hungary that the tax was incompatible with EU law but the government has not altered the legislation. The Commission will now take Hungary to the EU’s highest court, which will impose fines on Budapest unless the law is changed.

“The Commission considers this tax to be illegal because EU telecoms rules allow sector specific charges only to cover the specific costs of regulating the sector and not to generate additional revenue for the central budget,” the Commission said in a statement.

“Increasing the financial burden of telecoms operators could have an impact on consumers’ bills, distort competition and impede investment in a sector expected to drive growth.”

The referral to the ECJ is the latest in a series of moves by Brussels that have applied intense diplomatic and legislative pressure on Hungary, where the centre-right government is struggling to keep the economy on track.

The Commission is already pursuing action over Budapest’s failure to modify laws on the independence of the central bank, the national data protection authority and the retirement age of judges, a dispute which has hit the Hungarian forint.

Hungary introduced the telecoms fee and other one-off taxes on the retail, energy and financial sectors in late 2010, hoping the income would bring the budget deficit below the EU’s ceiling of three percent of gross domestic product. The Commission first raised its concerns about the telecoms tax in March last year.

France and Spain have been referred to the ECJ over similar one-off telecoms taxes.

Telecoms operators in Hungary affected by the tax include Magyar Telekom - a unit of Deutsche Telekom - Telenor and Vodafone.

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