Category: Hungary

Significant legal changes occurred in the Hungarian pharmaceutical and food industry in the summer of 2023. According to Government Decree No. 333/2023. (VII. 20.), as of 1 August 2023, the National Public Health Centre (NNK) and the National Institute of Pharmacy and Nutrition (OGYÉI) merged, establishing a new authority, the National Centre for Public Health and Pharmacy (Nemzeti Nepegeszsegugyi es Gyogyszereszeti Kozpont, NNGYK).

The NNGYK is a central budgetary body operating as a central office under the minister responsible for healthcare (currently the Minister of the Interior, Sándor Pintér) led by the chief medical officer, Cecília Müller. The Government Decree also appoints the NNGYK as the governmental body for pharmaceuticals.

The NNGYK is the legal successor of the NNK and OGYEI. Among its most important tasks are public health, epidemiology, health promotion, healthcare administration and coordination, occupational health, drug policy and activities in the fields of pharmacy, medical devices, food and cosmetics. The legislator expects increased efficiency and faster approval for specialised healthcare and pharmaceuticals through the merger of the NNK and the OGYEI, as the two organisations often worked together in various regulatory procedures. In addition, risk assessments following the placement on the market of food supplements, as well as any possible public health procedures related to them, may become more efficient after the merger.

In another important legislative change, Act XLVI of 2008 on the food supply chain and on the control and supervision of the food supply chain was amended as of 7 July 2023. According to the recent amendment, food supplements that do not comply with the conditions specified in the decree of the Minister of the Interior can only be sold in pharmacies or in stores that meet the conditions specified in the ministerial decree. The Minister of the Interior’s decree is currently being prepared.

According to the justification of the amendment, the various substances and plant parts used in the food supplements are not subject to prior control regarding their dosage, effects and side effects before being put into circulation, and anyone can purchase and use them. Lately there has been a rapid increase in the market for food supplement products, and consumers are turning to over-the-counter products. As a result, consumers can buy food supplement products in supermarkets, drugstores, webshops and the like without any professional control, increasing the risk of overdose or of different food supplement products being combined, which can lead to unwanted and harmful health effects.

With the amendment, the legislator aimed to ensure that appropriate expertise is available during the sales process so that consumers can be informed about product-related risks. Pharmacists or pharmacy assistants, as well as trained salespersons, can provide information as well as assistance, and can suggest complete treatment options for consumers. This measure also enhances patient safety. Consequently, instead of stores or webshops with potentially uncertain backgrounds, food supplements with high active ingredient content will be sold in reliable, regularly monitored pharmacies or stores. Thus, the amendment is expected to fundamentally reshape the food supplement market in Hungary.

By Daniel Gera, Office Managing Partner, and Akos Kovacs, Associate, Schoenherr

It is not uncommon for an employee to disagree with and criticise his superior. In this case the fundamental right to freedom of expression of the employee competes with his obligation to co-operate with his colleagues. Further, there are cases where the criticism by the employee is not protected by the freedom of expression and may be ground for dismissal, as shown by a fresh decision of the Hungarian Supreme Court analysed in this short article.

Facts

The claimant worked as a technical and energy manager at the employer manufacturing electronic cables for automotive companies. In 2020, the coronavirus pandemic severely affected the automotive industry, the defendant suffered dramatic cuts in orders that is why he had to make measures to reduce the working time.

The claimant’s direct supervisor, the company manager offered various alternatives (part-time employment in the same position, full-time employment in a different position or downtime) but the claimant refused all offers and later was declared unfit for work. After that, the claimant wrote an e-mail to the employer’s managing director, accusing the company manager among others with taking proceedings against him that were incorrect, illegal and unsportsmanlike.

Due to the above, the employer terminated the claimant’s employment by extraordinary dismissal. According to the justification of the dismissal, the claimant’s behaviour that he complained against his supervisor so that his letter contained untrue facts and accused his supervisor of incorrect and unlawful actions without any legal basis, made it impossible to maintain the employment, as the employer lost his trust in the claimant.

First and second instance judgements

The claimant sued the employer for damages and severance pay claiming that his dismissal was unlawful as he exercised his right to freedom of expression in accordance with the provisions of the Labour Code.

The first instance court dismissed the claimant’s action. In the court’s view, the claimant wrongly described the options offered by the employer as illegal and the witness statements did not support the claimant’s allegations in the letter.

The second instance court agreed with the first instance court’s findings and upheld the judgement. The court emphasized that the limitation of the freedom of expression is that the speech must not contain untrue statements. Besides the subjective opinion of the claimant, he submitted statements of facts which did not correspond to the reality.

According to the second instance court, the claimant’s letter could undermine the relationship between the managing director and the company manager. Therefore, it is reasonable that the employer lost his trust in the claimant, thus the justification of the dismissal shall be considered as lawful.

The decision of the Supreme Court

The Supreme Court dismissed the claimant’s request for judicial review. In the Supreme Court’s view, the employer successfully proved that the claimant, by circumventing his immediate superior, wrote a letter listing his grievances, a large part of which were untrue and capable of discrediting the company manager. As claimed by the second instance court, this behaviour could not fit in the category of freedom of expression.

The claimant, as a member of the management, had a special relationship of trust with the employer, and was therefore under a heightened obligation of cooperation, thus his beforementioned conduct is unacceptable.

When assessing the seriousness of the claimant’s misconduct, account had to be taken of his position in the employer’s organization, his managerial position, and the fact that his letter could have led to a negative perception of his immediate superior and his colleague in management.

To summarize, the claimant seriously breached his duty of cooperation, and his conduct could cause the loss of the mutual trust that the managing director and the claimant’s colleagues needed in the employment relationship.

Comment

The final judgement is in line with the well-settled court practice in two respects. First, the Supreme Court confirmed that the limitation of the freedom of expression is that the statements of the employee must be true, thus the criticism which contains untrue statements is not protected by the freedom of expression. Second, the highest judicial forum affirmed its previous practice that the managerial position of the employee entails increased obligation of cooperation and may influence the seriousness of the employee’s misconduct.

By Anita Vereb, Attorney-at-law, SmartLegal Schmidt & Partners

Noerr has advised the Rubix Group on its acquisition of Hungarian tool, machine, and general maintenance product distributor Tar Csavar-Csapagy. Deloitte Legal reportedly advised the sellers.

The Rubix Group is a London-based industrial distributor in Europe.

Tar Csavar-Csapagy is a specialist distributor of tools and general maintenance products in Hungary. It was established in 1992 as a dealer of fasteners and bearings and later supplemented its offering with industrial maintenance materials, hand and electric tools, machines, construction and wood hardware, and occupational safety products, among others.

According to Noerr, “as the only industrial distributor with a pan-European footprint, the Rubix Group is committed to enhancing its market presence further and providing unrivaled offerings to its customers. The acquisition of Tar Csavar-Csapagy marks an important milestone in this endeavor.”

Back in 2022, Noerr also advised on Rubix’s acquisition of Seall (as reported by CEE Legal Matters on January 10, 2022).

The Noerr team included Partner Zoltan Nadasdy, Senior Counsel Peter Stauber, Counsel Akos Mates-Lanyi, Attorneys at Law Eszter Hegedus, Eszter Sieber-Fazakas, Petra Eszter Deli, and Edina Czegledy, and Junior Associates Virag Ablonczy and Dalma Drotos.

The yearbook of the Hungarian tax authority summarising the most important tax events and statistics for 2022 has been published. It shows, among other things, the number of fines imposed and the effectiveness with which the tax authority’s decisions can be challenged. We have compiled the most important and informative figures from the yearbook.

Surpassing budgeted tax revenues

In 2022, the tax authority collected 20,602 billion forints (around 55 billion euros) in taxes, which, according to the annual accounts, was 17.2% higher than the previous year. But what is even more impressive is that this year’s tax revenues exceeded the budgeted amount by almost HUF 2.5 billion.

The tax authority attributes this positive result to three main reasons:

On the one hand, employment-related taxes produced more revenue than expected. This is explained in the yearbook by ‘higher than expected wage growth’ and ‘favourable labour market developments’. At the same time, however, the significant reduction in tax avoidance must have contributed indirectly.

Similarly, high tax revenues were helped by higher-than-expected inflation, according to the tax authority. As a result of inflationary developments, VAT alone generated additional revenues of 1.3 billion euros.

Finally, windfall profit taxes naturally increased tax revenues. This trend is expected to continue in 2023 thanks to the proliferation of special taxes.

Tax registration is a challenge for start-ups

Although the figures have not changed significantly compared to previous years, the number of new companies for which the tax authorities have detected some kind of tax registration obstacle remains extremely high. According to the figures in the yearbook, this was a problem for more than a third of new companies: of the approximately 32,000 new firms subject to tax registration investigations, nearly 12,000 were found to have a tax registration obstacle.

The number of tax audits also increased

The tax authority also has a lot to be proud of in terms of audits: compared to 2021, it investigated 6.2% more(160 thousand) cases, of which it determined 7.8% more (almost HUF 200 billion) in unpaid taxes. The unpaid taxes detected were of course accompanied by a substantial amount of fines and late payment penalties, amounting to HUF 250 billion – and a significant part of these findings survived the various legal remedies procedures.

This is a particularly interesting result considering that barely 6% of tax authority investigations were tax audits. Thus, the tax authorities continue to prefer to apply less invasive investigations and it is our experience that the tax authorities often prefer soft investigations rather than tax audits that result in fines.

A significant proportion of the findings – more than 90% – were made in the area of VAT. VAT also plays a prominent role in that the tax authorities have carried out a number of reassessments of fictitious invoicing chains, thus in several cases overturning findings for periods already closed by an audit. In terms of statistics, the tax authority closed 52 reassessments in 2022, which resulted in an additional – and substantial – HUF 3.1 billion in unpaid taxes to the detriment of taxpayers, compared to only HUF 3 million in their favour.

The tax penalty reduction

If we look only at the number of tax audits, the conditional tax penalty reduction continues to live up to expectations. A striking proportion of the approximately 10,000 tax audits is that in one tenth of these cases (990 in 2022), taxpayers have made use of the conditional reduction, i.e. waived their right to appeal in order to reduce the tax penalty imposed.

However, the yearbook shows that this mainly affected smaller cases: in 990 cases, taxpayers paid less than HUF 6 billion in tax arrears, which saved them HUF 1.6 billion in tax penalties. This figure is dwarfed by the total 200 billion forint of assessments in 2022, and this rate has remained essentially unchanged for years.

EKAER is not our strength

The tax authority also found a large number of irregularities in connection with the use of the Electronic Road Goods Control („EKAER”) System. Although the 2,200 infringements detected in 2022 are nominal compared to the almost 8 million EKÁER notifications made last year, it is noteworthy that this figure – with the same number of targeted controls (around 43,000) – is a significant hike compared to the number of irregularities detected in 2021 (1,335).

When the tax authority investigates

In 2022, the tax authority prosecuted more than 3,000 cases of criminal offences. 40% of these were tax fraud, 23% were infringements of industrial property rights and 11% were bankruptcy offences. The value of the latter three categories exceeded HUF 40 billion last year.

Statistics of legal remedies

In the year 2022, it also seems to be true that anyone who seeks to effectively challenge the tax authorities will have to go to court. The second instance body of the tax authority (the Appeals Directorate) found only 12% of the appeals filed in 2022 to be well-founded, upholding the first instance decision in the rest.

Last year, a total of 943 administrative lawsuits were brought against the final decisions of the tax authority, with a total value of approximately HUF 59 billion. This also means that barely a quarter of the cases reach the court stage. However, an average of one fifth of these claims are successful from the taxpayers’ perspective.

It is also significant that the courts awarded a total of HUF 135 million in legal costs in favour of taxpayers in these cases. This is, in average, 10% of the litigation value of the cases which were won by taxpayers. In other words: last year, on average, at least 10% of the value of the case had to be borne as legal costs to be successful. And of course, this is only the amount awarded by the court, experience shows that the actual costs, especially in smaller cases, can be several times higher.

Last year, taxpayers appealed 164 times to the courts and the tax authority appealed 91 times to the Curia, Hungary’s highest court. At the Curia, the tax authority’s win rate is much lower than in the ordinary courts: the Curia only upheld the tax authority in 62% of the cases it heard.

By Dániel Veres, Advisor, Jalsovszsky

Lakatos Koves & Partners has advised Polish listed company Selena Group on a strategic collaboration with Hungary’s Masterplast to establish a glass wool factory in Szerencs. Peremiczki & Turi reportedly advised Masterplast.

Hungarian listed company Masterplast is an insulation material and construction industry product producer and distributor.

The Selena Group is a distributor of construction chemicals and a global producer of polyurethane foam.

According to LKT, within the framework of a strategic collaboration, the Selena Group is to acquire a 50% stake in the glass wool manufacturing project in the Hungarian town of Szerencs, where the companies will jointly establish the glass wool factory. “The establishment of the mineral-based thermal insulation manufacturing plant was previously initiated by Masterplast through the acquisition of PIMCO. In the ongoing production development project company, Selena will carry out a close to EUR 10 million capital increase, acquiring a 50% ownership stake, and together with Masterplast they will continue the investment.”

The LKT team included Partner Ivan Solyom and Lawyers Botond Horvath, Balazs Rokob, and Viktoria Tamas.

Whichever product or service you are discussing, there are certain names, images or slogans that immediately come to mind. When setting up a business, it is crucial for any founder that the brand they represent has a distinctive, recognizable, ringing name. Building a solid business reputation is a long and bumpy road, but safeguarding legal protection for a brand name or logo to ensure exclusivity is much easier than many people think: the solution lies in trademark protection.

Many are familiar with it, yet only a few know it

Occasionally, the public may becomes aware of cases – just take the example of the Rubik’s Cube or Radio Juventus (or as of now, Youventus) – where a dispute has resulted in the loss of exclusive use rights of a sign, even after several decades. This can be a devastating blow to any business, as customers often associate the product or service offered by the name or other distinctive feature. Despite this glaring risk, few people in Hungary think of taking the legal steps necessary to obtain exclusivity while developing the branding elements. The lack of awareness is evident in the statistics: according to the Hungarian Intellectual Property Office (SZTNH), a mere 3.4% of Hungarian businesses possesses some form of intellectual property protection, while the number of trademark applications in 2022 have fallen by almost a fifth compared to previous years.

It’s worth hurrying…

The primary advantage of obtaining a trademark lies in its simplicity. Once you have an idea, a name, a logo or a slogan to launch your business on the market, there is no need to delay: you can initiate the trademark application process immediately – even before you actually use it. The filing date holds great significance as it marks the starting point for protection, following examination and publication. Failing to act promptly may expose the applicant to business risks and could easily lead to a situation where competitors are ahead of the applicant: missing the opportunity of obtaining protection (this was the case in 2017 with Chili TV, part of the TV2 group, which was forced to change its name as a result of a dispute with Paprika TV, part of the AMC Network).

However, the law rewards swift action with significant benefits: protection gives the applicant an exclusive right to use the trademark in the market for the goods or services offered by the applicant. It protects the applicant from being used or copied by anyone without its permission, and additionally, the applicant can also decide to whom it grants the right to use the trademark. Thus, the trade mark can also generate revenue for the business if used by others. The protection is for 10 years, which is a sufficiently long period and can be renewed for another 10-10 years at little cost.

…but thoughtfully

Before everyone rushes to SZTNH or the European Union Intellectual Property Office (EUIPO) to get a trademark as soon as possible, we would like to point out that not anything can be considered as a trademark. A mark must meet a number of legal requirements, the most basic of which require the scrutiny of the public authority.

For example, a designation must be unique, so it is not enough to reflect a particular characteristic of a product. Uniqueness is determined by the authority after weighing up a number of factors – in Hungary, for example, the shape of a sitting Easter bunny was not protectable, but the European Court of Justice ruled the same way in the case of a drinks manufacturer who tried to obtain the hissing of a beer can as a sound trademark – but the common point in both cases is that neither sign can be considered sufficiently unique, so it would not be legal for someone to obtain exclusivity for the use of these features.

Another crucial aspect to consider is that the sign must not be identical with or confusingly similar to other trademarks already registered. This evaluation must primarily be carried out in the market for the product in question, but there are trademarks that have a reputation that transcends markets (e.g. Coca Cola, Vogue, Louis Vuitton). Signs similar to these reputable marks cannot be protected for any other, even completely different, product. The best example of this is the Zara Hotel in Budapest, against which the Spanish clothing giant brought a damages action for trademark infringement, which ultimately led to the liquidation of the company that runs the hotel. It is advisable to seek the help of a consultant to determine whether there is a likelihood of confusion, but a preliminary search can also be initiated with the authorities to determine whether there is a chance of the sign obtaining trademark protection.

Encourage awareness

If a sign meets the forementioned conditions, it can obtain trademark protection through a 4-6 month process. Even if the procedure is not the quickest (although an out-of-court procedure can be initiated by paying a higher fee to the SZTNH), the rights obtained can be used by the company in the long term.

However, raising awareness (and thus competitiveness) of intellectual property among businesses is not only in the interest of individuals, but also of Europe: in 2023, the EUIPO has launched its Small and Medium Enterprises Grants Scheme, which offers a grant of EUR 1,000 to partially cover the costs of national or EU trademark proceedings. The grants will be allocated on a first come, first served basis from a fund of EUR 27.1 million. When you look at the amount of the grant, which effectively covers the entire cost of filing a European trademark application, and the benefits that a business can gain from obtaining a trademark, it is clear that it is worth starting the application process as soon as possible.

By Gabor Kerekes, Attorney at Law, Jalsovszky

Former Deloitte Legal Managing Associate Adam Boross has joined Jalsovszky as its new Head of the Banking and Finance group.

Previously, Boross spent almost three years as a Managing Associate with Deloitte Legal. Earlier, he spent almost three years as an Associate with Bird & Bird, between 2018 and 2020, and a year and a half as an Associate with Weil, Gotshal & Manges. He began his career with Baker & McKenzie, where he spent five and a half years, between 2011 and 2016.

“It is an exciting challenge to leave the relative immunity of international law firms and continue my career at one of the largest Hungarian firms,” Boross commented. “I feel that everything is given at Jalsovszky – including strategic thinking, a dynamic and youthful vision, and an excellent professional environment – to build a success story together.”

In 2016, when local authorities had been able to levy municipal taxes for more than a year already, we summarised the lessons that had been learned up to then from this newest genre of local taxes. At the time, we were waiting with bated breath to see what the future would bring, that is; to see just how creative local governments would get in thinking up new taxes. So what did ever happen to the ‘kitsch tax’, the ‘pony tax’ and all those other local levies? Now that a few years have passed, the time has come for us to once again peer into the weird and wonderful world of municipal taxes.

Municipal taxes in the pandemic years

Contrary to expectations, the domestic tax landscape has not been flooded with a growing number of ever more absurd local taxes, and it seems that only a very small proportion of local municipalities have so far seen potential in the genre. While in 2016, the year following its launch, there were around 60 municipalities that introduced some type of municipal tax, this number has not increased significantly in the years since then. Currently, the number of local municipalities that charge a municipal tax is between 100 and 120, a negligible proportion of the approximately 3,200 local authorities in Hungary.

There are, of course, many reasons for this. In some places the idea of a municipal tax had to be dropped due to public protest. The ‘horse and pony tax’ of Pilisjászfalu, for example, which was introduced in 2016, fell victim to this, and was scrapped by the municipality that very same year.

And if the widely accepted premise that Hungarians don’t like paying taxes wasn’t enough of a deterrent, the government itself prohibited councils from introducing any new local or municipal taxes in 2021 and 2022 as part of its measures aimed at shielding people from the financial effects of the pandemic.

Old classics rediscovered

Perhaps the latter also explains why in 2023 some councils have been searching with renewed vigour for proven formulas in the field of municipal taxes. It’s still the case, therefore, that the most common type of municipal levy is the arable land tax. Several councils have introduced a payment obligation of this kind this year, while the already existing arable land, reed or even fish-pond taxes are mostly doing fine too, thank you very much.

But in addition to the arable land tax, various ‘tower taxes’ are also enjoying a revival. For example, the village of Tivadar in Szabolcs-Szatmár Bereg county, with a population of about 160, has levied a progressive tax on structures taller than 20 meters since March of this year. Thus, for instance, structures taller than 50 meters are taxed by the council at HUF 5 million per year, while towers of under 30 meters are taxed at only HUF 1.5 million a year.

Besides the various categories of arable land, it’s common for local municipalities to tax land based on other characteristics. A good example of this is Mátraszőlős in Nógrád county, where the council has imposed a local tax on forests and wooded areas. But the tax levied on land classified as an ‘enclosed garden’ (for example in Söréd, Dömös, Kisecset or Felsőörs) has also been enthusiastically embraced by a number of municipalities. A key feature of the latter is that the municipalities usually demand the tax for the enclosed gardens by parcel number, in a lump sum.

Some fun facts here: Délegyháza in Pest County has imposed a municipal tax on the area of water reservoirs, mine lakes, swamps, fishing lakes and recreational lakes, while in Kőszeg and Gyöngyösfalu household wastewater storage tanks have been made the subject of a municipal tax.

In Óbuda, the town-scape protection tax, dubbed the ‘kitsch tax’, has been abolished, and in its place the municipality has introduced a performance-based tax on motor-driven watercraft, similar to the tractor tax. Nagymaros and Budakalász, among others, have followed this example.

And if it’s construction we’re talking about: in Leányfalu, owners of private buildings subject to planning permission are charged a one-time, square metre-based tax, which is probably an attempt by the council to prevent excessive building.

Finally, the village of Szűcsi, in Heves County, with 1,400 inhabitants, has imposed a municipal tax on jetties and fisherman’s huts, a somewhat humorous example of how to choose taxable objects based on local characteristics.

And where the Supreme Court has had a say…

Thanks partly to the weak interest municipalities have shown in imposing taxes of this kind, relatively few cases related to municipal taxes have reached the Municipal Council of Hungary’s Supreme Court, but there have nevertheless been one or two instructive examples.

In Balatonfüred, for instance, the local municipality identified 14 suburban properties that it thought should be used solely for agricultural purposes and tried to force the owners of these properties to do just that by including the properties, specified street-by-street, in a local tax decree imposing a municipal tax on them. The Supreme Court retroactively annulled this municipal tax. In its view, the municipality’s attempt to levy the tax was not consistent with the principle that rights should be exercised in accordance with their intended purpose, and it was in no way acceptable that a municipality should introduce a punitive local tax for what were in effect urban-policing purposes.

Similarly, the Supreme Court had to look at what was going on behind the scenes in the case of the “undesirable persons tax” in Alsónémedi. There, the local municipality introduced a tax of HUF 800 per day through a highly convoluted set of regulations that was ostensibly imposed on persons with a registered address in the territory of the municipality, or on people staying there or just de facto living there (in other words, everyone), but thanks to a broad range of exemptions, it was in fact only the increasingly numerous Romanian guest workers in the municipality who would have had to pay it. In its annulment decision, besides the municipality’s discriminatory intent, the Supreme Court also objected to the purpose of the taxation, stating again that a municipal tax cannot be introduced to achieve public-policing goals.

Finally, the ambitious plan of the Pestszentlőrinc-Pestszentimre Municipality for the introduction of an air passenger tax deserves a mention. Under its respective decree, which came into force in 2023, private individuals would have had to pay a flat-rate fee for their arrivals, departures, transfers and transit journeys to, from or through the airport located in the municipality’s area of jurisdiction (i.e. Liszt Ferenc International Airport). The decree would have made the ground handlers and airlines jointly and severally responsible for collecting the tax and, in the event of failure to do so, for paying the shortfall, thus imposing a huge and effectively unmanageable administrative burden on these operators.

The legality of the air passenger tax was examined by the Supreme Court on a very broad basis, and therefore the decision in this case will certainly be a milestone in future cases concerning municipal taxes. As one might have expected, the Supreme Court ended up annulling the air passenger tax. Among the many concerns raised by the Supreme Court, in its opinion the tax decree did not meet the requirement of normative clarity due to its shortcomings and lack of detailed elaboration. In this regard, the Court specifically pointed out that the municipality itself had not examined whether air travel, as the object of the tax ordinance, was not subject to another public tax regulated by law. The municipality had effectively left the task of investigating this matter to the taxpayer. And according to the Court, the tax ordinance did not meet the constitutional requirement of legal certainty either, if for no other reason than for the fact that Liszt Ferenc International Airport is located in the jurisdiction of several municipalities and thus not even the taxable object of the air passenger tax can be clearly determined from the municipal decree.

By Dániel Veres, Advisor, Jalsovszsky

Cytowski and Partners has advised Axoflow on its USD 2.5 million seed round co-led by Credo Ventures, 500 Emerging Europe, and Notion Capital, including several CEE angel investors. Diamond Law reportedly advised 500 Emerging Europe.

According to Cytowski and Partners, Hungarian start-up Axoflow enables enterprises to maximize their observability investment by controlling, refining, and monitoring their data supply chain. The cloud-native collection and curation solution is designed to optimize the full machine data lifecycle.

The Cytowski and Partners team included Partner Tytus Cytowski, Lawyer Eresi Tracy Uche, Associate Heidi Fan, and Law Clerk Kunal Kolhe.

The Hungarian Code of Advertising Ethics (hereinafter referred as: the “Code”) has not been revised since 2015, but the achievements of the times and the accelerated flow of information made it necessary to include some specific elements into the Code. Following approval by the advertising industry bodies, the new Code came into force on June 30, 2023. The purpose of this article is to highlight the most important changes to the content, in order of their position in the new Code.

The general part of the Code has mostly changed in structural terms compared to the previous ones. However, several important basic data protection principles of the GDPR – an EU regulation with direct effect since 2018 – have been implemented into this general part, making them pervasive rules throughout the Code. Article 8 on data protection provides for basic rules on the processing and handling of data in relation to advertising and specifically addresses the processing of personal data of minors.

The specific part of the Code has introduced a number of elements (such as new definitions) that can be considered as a significant change compared to the 2015 version – thus, it can be said that the specific part of the Code is the one that has mostly reflected changing life situations.

a) Protection of minors in the Code

Article 12 of the Code introduces a new conceptual system for the protection of minors: it differentiates between minors under the age of 18 in accordance with the rules of civil law, by considering minors under the age of 14 as children and minors between the ages of 14 and 18 as underaged. It is worth pointing out that, as a result of the above differentiation, there are rules which do not apply to both categories of minors, but only to minors under the age of 14 (i.e. children): (i) “Advertising must not imply that if the child himself or herself or a person invited by him or her does not buy the product or use the service, he or she is in breach of an obligation or promise.”; (ii) “Advertising must not show a child in a street environment or in a traffic situation alone in a way that could be a source of danger to children at the age as the child”; (iii) “Advertising must not show children using medicines, medical devices or medical equipment alone.” However, this does not imply that the underaged are entitled to a narrower scope of general protection: the Code merely intended to express that minors under the age of 14 are entitled to additional protection in the specific situations mentioned above. In this context, important new rules affecting minors can be found elsewhere in the Code, for example in the rules on advertising of cosmetics: (i) “Advertising of cosmetic products may promote the hygiene and health benefits of cosmetic products to minors, in particular in the case of sunscreen, oral care and cleansing products (shampoo, soap, oral hygiene and acne concealer).”; (ii) “The advertising of decorative cosmetics and perfumes shall not encourage their excessive use by minors.”; (iii) “The advertising of cosmetic products, including pictorial material, shall not promote sexualization among minors.”

b) Rules on advertising alcoholic beverages

The article about the advertising of alcoholic beverages has also been revised in the new Code. On the one hand, the title of the article has been changed (the new Article 18 is titled “Rules on the advertising of alcoholic beverages and non-alcoholic beverages wearing the brand name of alcoholic beverages”), and the scope of the rules has been extended accordingly. An interpretative provision at the beginning of the article captures the essence of the change: “The provisions of this Article shall apply to the advertising of all alcoholic beverages, except for medicinal herbal extracts and products made from them, and shall apply to the advertising of non-alcoholic beverages wearing the brand name of an alcoholic beverage.” Notwithstanding this, the article contains a very important new rule concerning advertising to minors and alcohol-related advertising: “Advertising of a non-alcoholic beverage wearing the brand name of an alcoholic beverage shall not be directed to minors, shall not use a visual or textual element primarily aimed at minors and shall not include a person under the age of 18.”

c) Rules on vehicle advertising

Still with the aim of keeping advertising regulation up to date, the changes to the rules on vehicle advertising are also worth mentioning. A new definition has been added to Article 19 of the Code titled “Rules on advertising of vehicles”: “For the purposes of this Article, ‘vehicle’ means any means of transport by land, water or air, whether passenger or goods, irrespective of the legal definition.” Moreover, a further important addition has been made to Article 19, reflecting the growing phenomenon of the so-called self-driving car: “Vehicle advertising shall realistically present the benefits of safety and driver assistance systems for driving. Vehicle advertising should not suggest that the vehicle’s safety, driver assistance systems are a complete substitute for driver attention and vigilance, nor should it suggest that the vehicle’s capability allows it to be driven faster than the relevant traffic rule and situation or in complete safety.”

d) Rules on gambling-related advertising

The rules on gambling-related advertising have been supplemented – although in a separate article (see Article 21) – by the rules on advertising for betting tip services. Nowadays, the number of online betting activities and betting on various sporting events has increased and the marketing of these activities has evolved considerably. The incorporation of these rules in the Code is a symbol of this progress. The Code takes account of the need to protect minors here as well: the target audience for such advertising shall not be minors and such advertising shall not be aimed to attract minors to this type of game. Advertising shall not claim or imply that success is otherwise guaranteed and can be profitable in the long term.

f) Rules on environmental advertising 

The new Code has also amended the rules on environmental advertising. At the very beginning of the relevant Article 22, a basic concept is reiterated, according to which an environmental claim, also known as a “green claim”, is “any statement or representation concerning the environment or ecological aspects and their consistency which refers explicitly or implicitly to the production, packaging, distribution, use, consumption, disposal or positive impact on the environment of a given product or company.”[7] Under Article 22, green claims must be appropriate and scientifically substantiated and, in view of energy hunger, advertising that labels energy waste as an acceptable behavior or advertising that works against the responsible management of natural resources should be avoided.

e) New rules on influencers

The third part of the Code titled “Advertising in the digital space”, has also undergone changes. Two elements are worth highlighting: on the one hand, this part of the Code has been expanded with a definition section, which specifies concepts such as the increasingly topical and growing number of so-called influencers; on the other hand, a specific article has been added about advertising with influencers (see Article 27).

Nowadays, it is common for any product to be promoted by someone whose digital content is widely known and accepted, whether for what they have to say or for their humorous subject matter. The new wording of the Code highlights advertising resulting from such cooperation, for which the influencer and the advertiser (i.e. the agency or media company) are jointly and severally liable. Another important new rule for influencers is that they cannot be considered to be free of influence if the advertising was linked to any form of remuneration. An important rule has also been drafted in relation to advertising published by an influencer: “The influencer must indicate if the content published is advertising (e.g. “Advertising”; “Advertisement”, “Paid content”, “Sponsored content”) and, if hashtags (#) are used, the advertising character must be indicated in the first position. The so-called advertising tag provided by the platform used to identify the content must also be used in Hungarian.”

Finally, it is important to underline that the new Code – just like the previous one – does not contain any sanctions and is ultimately not binding in general: it only sets out a general minimum standard that self-regulatory bodies must follow while pursuing their advertising activities.

By Zsuzsanna Lukacs, Attorney at law, and Daniel Nyulasi, Junior Associate