Category: Hungary

Hungary has ended the state monopoly on the online sports betting market and this now makes way for the market entry of operators incorporated in the European Economic Area (EEA) (“EEA Operators”).

The new regulation, adopted on 22 July 2022, is set forth in a major amendment to Act XXXIV of 1991 on Gambling Operations (“Gambling Act”) and provides for a competitive market from 1 January 2023 onwards. Nonetheless, the operation of online casino games will remain the privilege of the holders of national land-based casino concessions.

End of a long-running saga

Under the current regulation a de facto betting monopoly for the 100 % state-owned Szerencsejáték Zrt. has defined the market since 2014, which has been subject to subsequent legal disputes. Major market players, including Unibet (C-49/16) and Sporting Odds (C-3/17), brought the case before the Court of Justice of the European Union (CJEU) to decide whether Hungarian laws went against Article 56 of the Treaty and Functioning of the European Union (TFEU), which is intended to stop member states from disrupting the provision of cross-border trade and services. The CJEU ruled that Hungary’s online gambling licensing regime unlawfully excluded EU/EEA-licensed operators from the country’s licensing process and reiterated that Hungary must adopt a market regulation meeting objective, transparent, non-discriminatory and proportionate licensing criteria. The Hungarian Government submitted its proposal to the European Commission for new legislation in February 2022 and lawmakers adopted the approved scheme last week.

EEA Operators should prepare for hefty licensing applications

The amended Gambling Act introduces a multi-licensing model. EEA Operators will be able to provide online sports betting services to players in Hungary upon obtaining a licence (“Licence”) from the Supervisory Authority of Regulatory Affairs (“SARA”). The legislator did not establish an upper limit on the number of Licences to be issued. Secondary legislation including containing the detailed requirements will be adopted later by the supervisory authority as described in the text published in the Hungarian Gazette. However, based on the proposal submitted to the European Commission earlier (TRIS Notifications 2022/66/HU and 2022/67/HU), EEA Operators are expected to face the below conditions to obtain a Licence:

• the applicant shall have at least five years of experience as a gambling operator in another EEA country;
• the applicant, another company represented by the managing director of the applicant, or another company owned by the direct or indirect owner of the applicant, could not have been involved in the organisation of illegal gambling activities within five years prior to the submission of the application;
• the applicant shall establish a branch office in Hungary and shall provide it with a capital of at least HUF 1bln (approx. EUR 2.5m);
• the applicant shall provide securities in the amount determined by the SARA but at a minimum of HUF 250m (approx. EUR 625,000);
• the applicant shall pay a licence fee of HUF 600m (approx. EUR 1.5m) upfront for the entire duration of the Licence; and
• the applicant shall prepare and implement a player protection action plan approved by the SARA.

The Licence to be issued shall have a validity period determined by the SARA but up to a maximum of seven years. EEA Operators ought not operate more than one website under the same Licence.

… and expect long procedures

Before applying for a Licence, EEA Operators will be required to appoint and register a local representative (“Representative”) before the SARA. The Representative must be a Hungarian citizen domiciled in Hungary, must have a master’s degree in law or economics and must be free of any criminal record. Afterwards, EEA Operators may make legally valid declarations vis-á-vis the SARA only through the Representative.

EEA Operators and their Representatives should prepare for lengthy administrative deadlines. The maximum duration of the procedure aiming at the registration of the Representative will be 75 days, while that of the subsequent licensing procedure will be 120 days.

On the contrary, a short 15-day deadline is set for the registration of the licensed operators at the competent tax authority, if not already registered. As of today, the rate of the corporate income tax is 9 % in Hungary, while the rate of gaming tax applicable to online sports betting is 15 % (of the monthly net gaming revenue).

Strong market scrutiny through payment service providers

The SARA, in cooperation with the tax authority and the telecommunications regulator, has been struggling for years to keep out unlicensed online sports betting operators from the Hungarian market. Various measures have been applied, including website blocking and the imposition of fines, however, with limited success.

The amended Gambling Act, in compliance with anti-money laundering (AML) regulations, will focus market scrutiny on monitoring payment accounts and relevant transfers. EEA Operators may only make a payment to the players from their payment accounts which must be held with a payment service provider authorised under the Hungarian acts on payment service providers and financial enterprises (“Authorised Account Provider”) by transferring to the player’s payment account held with an Authorised Account Provider. At the same time, the new legislation stipulates that an EEA Operator may only have such a payment account if it confirms that it has been granted a Licence. To enforce the above, the upcoming legislation provides for detailed rules applicable to payment service providers on mandatory restricting or blocking of unauthorised payment accounts and payment transactions related to illegal (unlicensed) operators.

Still many questions remain unanswered before market opening

EEA Operators aspiring to obtain a Licence may now start preparing for the respective procedure. However, several prospective applicants are already present on the Hungarian market and provide services to a high number of Hungarian players despite the effective prohibitions. It remains a pressing question as to how these “grey portfolios” will be handled in light of the market opening. Additionally, it is also uncertain as to whether the legislator will adjust the tax rules applicable to incomes from online sports betting, which currently exempt winnings paid by licensed operators (i.e. the incumbent Szerencsejáték Zrt.) from personal income tax payment obligation, but scrutinise incomes from unlicensed (illegal) sports betting.

As a next step, the SARA is soon expected to issue its decree on the detailed rules of the respective licensing as well as on operational and technical requirements. These should not differ materially from the respective proposal submitted to the European Commission in February 2022. However, EEA Operators may be left with uncertainties until the publication of the final set of conditions, or even beyond that date. For example, the SARA will likely retain certain discretionary rights in relation to the validity period of the Licences or the quantum of securities to be provided.

By Gergely Horvath, Attorney at Law, and Balint Bodo, Schoenherr

The importance of ESG in business has become clearer as the moral and ecological reasons are now obvious to everyone. In theory, all companies support the idea of doing business in a more sustainable and climate-friendly way. However, in practice, companies usually only do something when they have to. In Hungary, there isn’t any binding ESG supply chain act in place yet, which could wrongly lead to the conclusion that the topic is unimportant. Yet considerations about ESG in the supply chain are no longer nice-to-have but have become a must-have globally, and Hungary is no exception. There are various locally relevant reasons for which companies must start prioritizing the management of ESG risks in their supply chain.

As an example, failing to meet ESG criteria at the manufacturing site by using unacceptable working conditions puts the whole company at high exposure for reputational and other risks. This is relevant to all suppliers in the chain, particularly given that, according to recent studies, approximately two-thirds of the average company’s ESG footprint is generated by its suppliers. For a number of international companies, Hungary is the seat of either their direct or indirect supplier, whilst for several investors also the seat of their own production facility. Hungarian companies cover each part of the ESG puzzle and neither of these entities can afford to exclude the wider ESG picture any longer.

There have been a few examples recently that highlight the importance of ESG across all elements of the supply chain. A scandal related to the horrible working conditions at a luxury brand owner’s facility in India surfaced, and the company suffered serious damage to its brand, although the company itself did not breach any laws. Similarly, a tech giant attracted close scrutiny when many suicides were recorded at one of its Chinese factories. Subsequent investigations uncovered mandatory overtime, overcrowding, etc. The aftermath of the findings wiped almost USD 30 billion off the company’s value in a single day.

All these cases highlight that not managing ESG risks throughout the supply chain can cause major financial and reputational losses, even if the company itself does not breach any laws. In case of a similar scandal, not breaching any Hungarian law wouldn’t save the Hungarian company from the indirect losses of the company group. Dealing with supply chain risks in advance can help minimize environmental and social impacts while protecting the company’s brand. All the companies in the examples above have since introduced robust supply chain sustainability programs, which are now mandatory for all of their suppliers.

Further pressure on ESG considerations comes from regulators and other stakeholders. ESG issues are at the center of both business and political agendas globally. Investors, business partners, the media, and consumers urge companies to conduct their businesses in a way that cares more about ESG issues. The above examples also show that these goals cannot be achieved if we look at the company as a standalone entity. Hungarian companies – wherever they stand in the supply chain – must look closely at their value chains to foster sustainable and responsible corporate behavior, by monitoring their every aspect and taking appropriate actions to meet ESG requirements.

Nevertheless, the legal framework for global supply chains continues to evolve. Soft law regulations are now being converted into hard law provisions. An example is the German Supply Chain Act, whose effects may extend to businesses headquartered outside Germany, such as to their Hungarian affiliates. At the EU level, the Proposal for the Corporate Sustainability Reporting Directive would introduce detailed reporting requirements, confirming the crucial role of value chains in measuring a company’s carbon emissions and its complete environmental and product footprint. The Proposal for the Corporate Sustainability Due Diligence Directive would impose a due diligence obligation on companies to identify actual and potential adverse impacts on human rights and the environment, including regarding the company’s value chain operations carried out by their established business relationships.

The reporting and DD obligations will be burdensome for Hungarian companies as well, and it is advisable to start preparations with plenty of time to spare. The implementation of extended risk analysis tools, preventive measures, and remedies against human rights and environmental violations in the supply chain is not only recommended, to prepare for upcoming laws, but is also required for the non-regulatory related reasons mentioned above.

Veronika Kovacs, Senior Counsel and Head of CEE Public Procurement, CMS

This Article was originally published in Issue 9.7 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Since the end of the 2010s foreign direct investment (“FDI”) considerations have been on the forefront of transaction planning and management. Although a unified EU-level screening mechanism is not in place, recently the European Commission (“EC”) closed a landmark case, while another one is currently ongoing before the European Court of Justice (“ECJ”) where the interplay of EU law and more specifically, EU merger law and national FDI rules were/are assessed. Dicta in these cases may have considerable implications in national FDI practice. This summary therefore provides a quick glance-through of the key notables taken from these cases.

1. The EC’s decision regarding the acquisition of the Hungarian leg of the AEGON transaction

Based on publicly available information, in April 2021 the Hungarian Minister of Interior denied to grant acknowledgment to the Hungarian leg of the acquisition by VIENNA INSURANCE GROUP AG Wiener Versicherung Gruppe from the Aegon Group of its Hungarian, Polish, Romanian and Turkish life and non-life insurance, pension fund, asset management and ancillary services businesses, referring to the legitimate interests of Hungary[1].

The EC investigated the case, and having taken into consideration the input of the Hungarian authorities, it found that the Hungarian veto decision violated the EU Merger Regulation. Therefore, the EC ordered Hungary to withdraw the decision, on the following grounds:

i) Article 21 of the EU Merger Regulation sets out, as a general rule, the exclusive competence of the EC regarding concentrations with an EU dimension, ruling out the applicability of national laws to these transactions. The exemption from this general rule is the opportunity of the member states to take appropriate measures to protect public security, plurality of the media and prudential rules as legitimate interests. Any other public interest must be compatible with the general principles and other provisions of Community lawand be communicated to and be recognized by the EC after a compatibility assessment with the foregoing, before a measure is taken.

ii) the EChad reasonable doubt as to whether the veto genuinely aimed to protect Hungary’s legitimate interests, in particular, whether it posed any threat to a fundamental interest in society (especially since both parties had already a well-established presence in Hungary).

iii) the Hungarian authority – in line with Article 21 of the EU Merger Regulation – should have communicated the intended veto but failed to do so, which constituted an infringement.

iv) the veto was incompatible with EU rules on the freedom of establishment as the Hungarian authority did not demonstrate that it wasjustified, suitable and proportionate, and restricted the right to engage in a cross-border transaction.

Based on the above, from an FDI and transaction planning perspective, while FDI screening remains on a national level, FDI screening and EU-level competition clearance may take place in parallel. Further, in community level concentrations, the EC as competition authority may ultimately overwrite a national-level FDI veto, on the basis of Article 21 of the EU Merger Regulation (provided that the referred provisions EU law is not complied with).

Consequently, prior to prohibiting a community-level transaction on the national level, based on national FDI laws, the FDI authorities of the Member States should also make sure whether the measure to be imposed is in line with Article 21 or the EU Merger Regulation, and whether in the case of EU investors, the fundamental freedoms under EU law are taken into consideration.

2. The preliminary ruling procedure currently ongoing before the ECJ regarding the acquisition of a Hungarian raw material extractor

The Budapest Capital Regional Court requested the preliminary ruling of the ECJ in a case against  the Hungarian Minister of Innovation and Technology concerning an FDI veto. The acquirer  is a concrete products producer that intended to acquire a Hungarian strategic company engaged in raw material extracting. The acquirer notified the transaction to the Hungarian Minister of Innovation and Technology, who issued a prohibition.

By way of background, from public sources we understand that the reasons of the prohibition were the partial indirect Bermudan ownership in the acquirer that, according to the Minister, presented a risk regarding the security and supply of building materials, which could be especially harmful to national economy in the context of the COVID-19 pandemic. The acquirer turned to court locally arguing that the ministerial decision qualifies as arbitrary discrimination, and/or restriction on the free movement of capital, and referred to the fact that in 2017 the EC – in a previous transaction – already approved its ownership structure.

The local court hearing the case referred the following questions to the ECJ:

i) does Article 65(1)b of the TFEU (considering recitals 4 and 6 of Regulation No. 2019/452 of the European Parliament and of the Council (“EU FDI Regulation”), as well as Article 4(2) of the TFEU) permit Hungarian law to set out rules such as those in the 2020 FDI Act, and more particularly:

a) the definition of “state interest”(Section 276(1) of the 2020 FDI Act). On a side note, the wording of the current definition[8]is quite wide and covers “such public interest that is related to the security and operability of networks and installations (berendezések), the continuity of supply, or public interest that, from the perspective of national economy, is related to fundamental economic strategy (nemzetgazdasági szempontból alapvető gazdaságstratégiai érdekkel összefüggő közérdek), provided that the foregoing is not regulated by sectorial European Union-level regulations or national regulations.

b) rendering an acquisition notifiableif the foreign investor executing it is a person with purely EU/EEA/Swiss control background (or a person who is a citizen of/established in the EU/EEA/Switzerland and is under the majority control of a person who is a citizen of/established in a country outside of the EU/EEA/Switzerland) and the aggregate value of the transaction reaches or exceeds HUF 350 million (Section 277(2)a) of the 2020 FDI Act).

c) defining as grounds for blocking a transactionthe following: the impairment, endangerment (or the risk of these) of the state interest (államérdek), public security (közbiztonság), public order (közrend) of Hungary, taking into consideration especially the security of ensuring supply for fundamental needs of the society (alapvető társadalmi szükségletek ellátásának biztonsága)(Section 283(1)b) of the 2020 FDI Act).

ii) if the answer to the question above is in the affirmative, does the mere fact that the EChas conducted a merger control procedure, exercised its powers and authorised a concentration affecting the chain of ownership of a foreign indirect investor preclude the exercise of the decision-making power under the applicable law of the Member State? We note that if the answer to this question will be yes, such could greatly reduce transaction risk and simplify transaction planning.

From the perspective of national-level FDI practice all of the above queries are of significant importance. We are monitoring the status of the ECJ procedure and once their conclusions are available, we will update this summary.

By Blanka Borzsonyi, Senior Associate, DLA Piper

Government Decree No. 230/2022 passed on 28 June 2022 introduced a new regime which enables the Hungarian Government to place certain entities under the supervision of the Hungarian State. Such entities shall have a significant or dominant position in the energy industry, in particular in the following sectors having strategic and national security importance: (i) electricity, (ii) natural gas, (iii) crude oil, (iv) district heating and (v) mining. The legislation expressly mentions two entities, i.e. FGSZ Natural Gas Transmission Private Company Limited by Shares and the Hungarian Hydrocarbon Stockpiling Association.

The person vested with the supervisory rights on behalf of the Hungarian State may take the following actions vis-á-vis the entity:

(i) review the financial standing of the entity;
(ii) approve the commitments of the entity;
(iii) decide on matters which fall into the competence of the supreme decision-making body of the entity; and
(iv) take all measures that are necessary to maintain the viability of the entity and to ensure the effective exercise of the supervision of the Hungarian State.

The purpose of the new legislation is to ensure the security of supply; however, it remains silent on various issues which are to be crystallized by the practice. Among others, liability issues are ambiguous; it appears that the Hungarian State may only be held liable under very limited circumstances in case of damages caused by the person vested with the supervisory rights.

By Akos Mates-Lanyi, Counsel, and Esztella Cseh, Associate, Noerr

Due to the armed conflict and humanitarian disaster in Ukraine and in order to avert the consequences of such conflict in Hungary, the Government has adopted a decree that entered into force on 29 June 2022, on the basis of which, in order to safeguard the public interest of continuity and security of supply, the Government may place under the supervision of the Hungarian State the operators with significant or dominant market power in the energy industry, in particular in electricity, natural gas, petroleum, district heating and mining industry, including e.g. FGSZ Foldgazszallito Zrt. and the Hungarian Hydrocarbon Stockholders Association.

The Government may order that the person designated to exercise the state supervision may take all measures necessary to maintain the viability of the supervised entity, to ensure the effective exercise of state supervision and shall have the exclusive right to decide on matters falling within the competence of the supreme decision-making body of the supervised entity.

Up to now, the Government has not exercised its right under the Decree and there is no information when it will place those entities under state supervision.

By Eszter Ila-Horvath, Attorney at Law, KCG Partners Law Firm

EU businesses are free to cross borders and relocate their headquarters to another Member State. The amended EU directive and the corresponding new Hungarian rules aim to help companies doing so. In order to make it easier for companies to establish themselves in another Member State and to make cross-border operations more attractive, especially for small and medium-sized enterprises, the European Union decided back in 2019 to amend the EU directive on cross-border mergers, divisions and mergers.

The amended Directive (EU) 2019/2121 of the European Parliament and of the Council of 27 November 2019 amending Directive (EU) 2017/1132 as regards cross-border conversions, mergers and divisions (so called Mobility Directive) came into force on 1 January 2020 and Member States must bring into force the laws, regulations and administrative provisions that are required to comply with the Directive by 31 January 2023.In so far in Hungary specific provision applied only to cross-border merger of companies. It implied that ‘simple’ relocation of business from Hungary to another EU Member State could be done in two ways: by the owners dissolving the company in the country of origin without legal succession and then setting up a new company in the host Member State; or by merging two companies through a cross-border merger.

The new rule, while also providing simplifications for mergers and divisions, explicitly covers cross-border conversions as well, and allows for example, a limited liability company or public limited liability company registered in a Member State to convert its legal form into a limited liability company or limited liability partnership under the law of the host Member State at the same time as transferring its registered office. In practice this means that a Hungarian limited liability company can be simply transformed into, for example, a German GmbH or a Croatian d.o.o., or vice versa, while retaining its legal personality and maintaining its previous legal relationships, such as customer contracts, employment relationships with its employees or bank loan agreements. The new regulation focuses on the three key participants of such transformations: shareholders, employees and creditors; and sets out the main steps of a cross-border transformation. The Hungarian implementation enters into force as of 1 August 2022 (with some of the provisions as of 1 September 2022).

By Balint Zsoldos, Head of Tax, KCG Partners Law Firm

The amendments to the execution government decree of the Land Registry Act entered into force on 1 May 2022, which introduced a new definition of parking space. A parking space is an area serving for the placement of a motor vehicle created in the motor vehicle storage room of a building, one side of which is connected to the access road to the parking spaces and the other three sides of which are delimited by a permanent physical marking or wall on the floor of the room. The definition also specifies the size of the parking space. This is important, since as a result, a parking space in a car storage room of a condominium may be registered as an independent property in the land registry. This only requires a proof of existence of a car storage room in the building.

On the other hand, the amendment has created the possibility that if a property, to which the pre-emption right relates is registered on a separate land registry extract for a condominium or cooperative building, and the property is also classified as a garage, instead of a return receipt (in Hungarian: tértivevény) or acknowledgement of receipt (in Hungarian: átvételi elismervény) for the notification of the beneficiary of the pre-emption right, it also may be accepted if the joint representative of the condominium or of the person authorised to represent the cooperative issues a declaration in a private deed with full evidence that the purchase offer has been posted in a conspicuous manner in the common areas of the condominium or cooperative building for the duration of the period for which the offer is binding.

This declaration shall be accompanied by an original copy of the purchase offer, including the date of posting, the date of removal and the signature of the joint representative or of the person authorised to represent the cooperative making the declaration.

By Lidia Suveges, Attorney at law, KCG Partners Law Firm

Cerha Hempel Head of Competition Marton Kocsis has been promoted to Partner with the firm’s Budapest office.

Kocsis, who re-joined Cerha Hempel in 2020 after spending a year as the Chief Compliance Counsel with Mol (as reported by CEE Legal Matters on April 6, 2020), has been at the helm of the firm’s Competition practice for two years.

According to Cerha Hempel, Kocsis “spent almost eight years at the Hungarian Competition Office and the European Commission before joining the firm in 2015, where he has worked with Tamas Polauf to establish one of Hungary’s largest competition law practices. Kocsis has been in charge of the competition law team since 2020, which under his leadership has added consumer protection and general compliance to the areas covered by the team.”

“I am infinitely grateful to the firm’s partners, and particularly the management, for their support, and not only in connection with becoming a partner, but also for their unwavering trust in me during my time here,” commented Kocsis. “I’m also immensely proud of the members of our team because my being made partner is also recognition of their hard work and therefore arguably it’s a success for all of us.”

“We welcome [Marton] Kocsis as a new member of our partnership,” added Managing Partner Tomas Polauf. “He is not only one of the best in his field but he also has outstanding business development and client management skills, as our clients consistently attest.”

In Hungary the Government recently issued a decree introducing extra profit taxes affecting several sectors, among others the aviation sector. Pursuant to the Governmental decree, as of 1 July 2022 an extra profittax is payable by ground handling companies based on the number of passengers departing from Hungary, with the exception of transit passengers. The new special tax is HUF 3,900 (approx. EUR 10) or HUF 9,750 (approx. EUR 25) per passenger depending on the passenger’s final destination.

Albeit the tax is payable by ground handling companies under the Governmental decree, shortly after its publication rumors took flight that in reality the airlines would have to pay, who would consequently pass the cost on to the passengers – presumably by selling the flight tickets with elevated prices reflecting the increased amounts. The Ryanair dispute with the Hungarian Government is in the spotlight at the moment. The dispute arose following Ryanair’s statement that as of 1 July the passengers would have to bear the extra cost even after tickets had been bought, irrespective of the date of the booked flight. Although the passengers were also provided with the option of full reimbursement for the ticket, the Government was not that pleased with this approach. As a result there is now a consumer protection case pending against Ryanair.

The question arises: would it be lawful to impose fines on airlines for incorporating the taxes into their ticket prices? Let’s take a brief glance at the general legal aspects of this question.

The price increase is not a consumer protection issue

Airlines – being corporations driven by the aim to generate profits – apply prices according to various factors such as time (travelling within or out of peak season), the recovery of costs (fuel, staff), and the taxes. The Civil Code also stipulates as a basic principle that the main purpose of companies is the pursuit of business – recognizing that making profit is the basis for their existence. Thus, the mere fact that the price of a flight ticket is dependent upon certain aspects and that flight companies increase or decrease prices in reaction to the changing circumstances is not an unlawful practice. In fact, this is not even a consumer protection law issue.

In principle, companies can set their prices at their own discretion. The consumer protection law only requires them to communicate this clearly and appropriately to the passengers – the consumers – who buy the tickets. We note that this is in line with, inter alia, the provisions of Regulation (EC) No 1008/2008 on the application of free pricing in air transport as well.

Moreover, corporations may set their prices freely even without being obliged to reveal the reason for a price change. The only exceptions to this lie within competition law. This is because competition law has explicit prohibitions forbidding market participants among others from colluding on prices or from setting prices along aspects falling outside of market conditions and costs incurred. Competition law also forbids dominant companies from applying their prices in an abusive way. Therefore, it may happen that an undertaking must justify how it has set its prices to the competition authority. The factors determining prices can be very diverse: inflation, changes in taxation, purchase prices, raw material stocks, human resources, demand, market competition. As can be seen, costs and tax burdens are explicitly accepted aspects from a competition law point of view.

The underlying reason behind the price increase in the airlines market that could be experienced in general in the past years can be traced back to the following main factors: the mitigation of financial difficulties resulting from the coronavirus crisis and increased fuel costs. Now, the price increase is a result of the newly introduced extra profit taxes.

Let’s assess the current situation in more detail. Below we examine the case with a specific consumer protection law focus while separating (i) those people who will travel after 1 July 2021 and have not purchased a ticket; and (ii) those who will travel after 1 July 2021 and already have their flight tickets.

Those who will fly after 1 July 2022 but don’t have a flight ticket yet

As we have noted, companies must comply with certain consumer protection law provisions when it comes to the communication of their prices. They are for example obliged to display the total prices in a clear, identifiable and unambiguous manner, showing the currency as well.

And so, airline passengers must be aware of the total and final price of a flight ticket they intend on buying. This means that the prices visible must also include the charges for extra services such as travelling first-class. It is crucial that the passengers are aware of this at the time they make the purchase. If the passengers can see the total prices clearly and unambiguously when making a purchase, the increase in the amount of the price is not a consumer protection issue. It is also not relevant whether the increase is due to the rise in fuel prices, the coronavirus pandemic, the extra profit tax or anything else.

Therefore, as long the passenger is aware of the prices clearly and unambiguously when making a purchase – irrespective of the exact amount of the price – that qualifies as being a lawful practice from a consumer protection law aspect. It must also not be forgotten that passengers can still choose not to buy the flight ticket.

Those who will fly after 1 July 2022 and have a flight ticket

The Government decree on the extra profit tax was published on 4 June and the extra profit tax is payable on flights departing from 1 July onwards. This means that theoretically airlines had the possibility to increase their prices on 4 June or soon afterwards, i.e. before 1 July. As we have made clear, the price increase is lawful until anyone who buys a flight ticket is clearly aware of the total price of the journey. In addition, it is also lawful for airlines to raise prices at the same time or shortly after each other – provided they do not do so in the context of concerted practices, which is strictly prohibited by competition law, as explained above. However, the question still arises as to what happens to tickets purchased before 4 June for travels after 1 July.

The tax will be payable in any case after 1 July, even though the airline could not have calculated it before 4 June and thus could not have been reflected in their prices either. The above referred EC Regulation provides guidance in this respect: when indicating the price of the tickets, the airline is obliged to indicate, in addition to the fare, all taxes, charges, surcharges and fees that are unavoidable and foreseeable at the time of publication of the price. Therefore – since the airlines were unable to foresee the extra profit tax or that it will be paid by them before 4 June – the failure to communicate this to the passengers in advance should not be regarded as an infringement.

Can the airline increase the ticket price after purchase?

Airlines, like other similar larger companies, have GTCs and these GTCs usually cover the possible cases of ex-post price increases and the conditions under which they can be applied. Ryanair’s GTC also includes such provisions setting forth the possibility to impose ex-post charges. The EU and Hungarian legislation on unilateral contractual modifications in GTCs – in this case, unilateral price increases – stipulate that these can be regarded unfair if the consumer does not have the possibility of cancellation or withdrawal. In other words, if the airline communicates the inclusion of the extra profit tax in such a way as to offer the possibility of a refund, this appears to be lawful. The legal pre-question that will probably need to be clarified in this context is whether this can be considered as a tax transfer or merely the inclusion of a newly incurred cost on the part of the airline.

However, there are also other aspects that will need to be considered here. Case law usually deems it unfair for a company to make the performance of an obligation subject to additional conditions. This could be compared to a situation where someone pays for goods in a shop, then leaves and suddenly the shop assistant rushes after them asking them to pay again before taking the goods home to consume. This is a bit unrealistic, right? However, it would require a further analysis of the case law to decide whether the payment of an extra profit tax could be considered such a situation. In this regard, it should also be considered that the passenger has the possibility to opt out and request full reimbursement instead of paying the tax. Yet, it would presumably be hard to find an airline that would take the passenger to the same place at roughly the same time for the same price, i.e. without including the extra profit tax.

Even though the details of the consumer protection procedure lodged against Ryanair are not public, we can assume that the case will address some of the questions above. Needless to say, perhaps several thousand passengers are concerned since it is not unrealistic to buy summer flights in spring.

By Alexandra Bognar, Attorney at law, and Dora Balogh, Associate, Schoenherr

Dentons has advised Raiffeisen Bank on a USD 200 million five-year syndicated green loan facility for Volta Energy Solutions Hungary. Kinstellar advised the borrower.

“As a result of the transaction, Volta, a subsidiary of Solus Advanced Materials in South Korea, which is one of the global leading producers of battery copper foil, will be able to complete its USD 310 million second investment phase in Kornye, in northwestern Hungary, and to increase its battery copper foil capacity from 15,000 tons per year to 38,000 tons per year,” Dentons announced.

Solus Advanced Materials subsidiary Volta is an ultra-thin battery copper foil manufacturer for electric vehicle batteries.

“We are delighted with our cooperation with valued syndication lenders, which marks another step forward in greening the economy and advancing e-mobility,” Solus Advanced Materials CFO Keun Man Kwak commented. “We strongly believe this syndication will strengthen our growth strategy and contribute to accelerating the shift to electric vehicles and a cleaner world for us all. We look forward to continued cooperation with local financial institutions as a committed long-term partner.”

The Dentons team was led by Partner Gergely Horvath and included Hungary Managing Officer Gabor Kiraly, Senior Associate Gabriella Pataki, and Junior Associates Kinga Kovacs and Nora Nagy.

The Kinstellar team included Budapest-based Partner Csilla Andreko, Of Counsel Dalma Ordogh, Counsel Levente Hegedus, and Junior Associate Zoltan Zagyva, as well as Prague-based Partner Kvetoslav Krejci.