Category: Hungary

The Hungarian Competition Authority (“HCA“) is one of the few competition enforcers in Europe with a prominent consumer protection enforcement practice. While consumer protection is not solely within the purview of the HCA in Hungary, the legal framework gives it relative freedom to pull any significant unfair practice that could affect competition under its jurisdiction. The HCA does not shy away from wielding its powers. In fact, some of the leading consumer protection fines in the EU are attributable to it.

For example, just this summer the authority imposed a fine of close to EUR 2.4m on Alza, one of the largest online marketplaces in CEE. According to the HCA, Alza failed to meet the promises made to consumers during its Black Friday campaign. Shortly before the Alza decision, the HCA imposed a fine of close to EUR 7m on booking.com for aggressive and misleading commercial practices against consumers.

Past cases show that the HCA’s ever-increasing activity and the growing fines stem from conscious strategy decisions. In 2017, a misleading promotional campaign resulted only in a negligible fine of EUR 55,000 for Extreme Digital (another large online retailer), a sanction which is dwarfed by the fines imposed in 2020.

There is good news too. With the increased enforcement efforts, there is a growing decisional practice to guide companies. The HCA’s holiday-sales practice has tremendous potential to aid companies aiming to hold large-scale sales but at the same time avoid large-scale fines.

Below, we distil the HCA’s recent practice into clear guidelines in order to assist with any sales or promotional campaigns.

Why are sales and promotions important for the HCA?

The HCA’s main goal is to ensure consumer welfare. This includes the protection of the consumer’s decision-making process. Statements made during or prior to sales and promotions may interfere with the consumer’s ability to properly consider their options and purchasing decisions, especially prior to the holidays when consumers may have already decided to make a larger purchase. Consumers may also be more sensitive if they are under pressure (seasonal or inflicted by the company itself through its messaging).

Several factors might alert the HCA’s team. Below we take a look at these factors one-by-one.

Communication: how to inform about prices and conditions?

The legal:

Promotions and sales are organised around opportunities for consumers to save money on their purchases. The information about prices and the eligibility of a consumer purchase for the saving qualifies as “material information”. This qualification gains relevance through the HCA’s practice. Misleading communication regarding material information is capable of distorting consumer decisions which, in turn, is considered a breach of the law.

To ensure that all material information is conveyed fully to the consumer, it is important to understand how the HCA views the consumer’s perspective. According to the HCA, there is an information asymmetry between the company and the consumer. The consumer does not have a full overview of the pricing and the conditions applied by the company. The company cannot expect the consumer to exert significant efforts to balance this asymmetry; rather, it is the function of the company’s communication to provide the consumer with comprehensive information.  

The practical:

All campaigns must be designed with this information asymmetry in mind. According to the HCA and the courts, it is unlikely that a consumer would put any effort into reviewing the underlying conditions that put headline statements of promotions in context, even if the conditions are available (e.g. online). By their nature, promotional campaigns carry statements that consumers understand as full and exhaustive information, which is designed to compensate for this information asymmetry. The responsibility stemming from this asymmetry lies with the company and cannot be transferred to the consumers.

Therefore, the communication of a promotional campaign must be:

Clear and precise. It should not require additional research or review from the consumer to understand the information regarding the prices and the conditions of the promotion. The products involved, the limits of the discount, and the exceptions must be easily accessible (e.g. on the promotional pamphlet or in the e-mail about the promotion). Consumers cannot be expected to search for the terms and conditions or to interpret separate communications together. For example, if the promotion conveys the message that “all products are on sale” the consumer cannot be expected to look for constraints behind the communication. This applies even if the communication refers to “more information” elsewhere.

The HCA has also noted that the fine print does not nullify a misleading headline, if the headline can distort the consumer’s decision-making.

Raising the hype: can it distort decision-making?

The legal:

The HCA regards the consumer’s transactional decision as a process involving several distinct steps. The first phase – attracting the consumer’s attention – provides several opportunities for unlawful (unfair) practices to distort the process, especially when consumers already intend to spend a significant amount of money (e.g. before the holidays). Therefore, advertisements or other materials which might attract consumers must also adhere to the rules of clarity and precision.

The practical:

Infringements related to this phase of the consumer’s decision-making typically manifest themselves in the following forms:

• the communicated benefits are hardly available for the consumers (e.g. the “up to 50 % off days” at a major bike retailer features only children’s bikes at half price, but all adult bikes and brands are kept close to full price);
• the communication features products in a misleading manner (e.g. the “two for one” promotion communicated with pictures of expensive designer clothes at a fashion retailer involves only cheap accessories which the retailer distributes with each purchase);
• the communication features appealing products as a hook (e.g. the “crazy sales” banner depicts expensive smartphones from the latest generation, while the sales apply only to cheaper, older or less popular products).

In these cases, the communication aiming to attract consumers qualifies as an infringement of the law at the moment of publication. It follows that delayed communication of conditions do not negate the infringement. If the conditions are clarified upon entrance into the retail store or even if the communication is extended and clarified a few days before the sale, it is unlikely to convince the HCA that no infringement has taken place.

“Up to” statements: how to avoid up to 10 % annual turnover in the HCA fine?

The legal:

An “up to” statement is a statement where the company communicates the available discounts by referring to the maximum discount achievable by consumers during the sales, e.g. “up to 50 % off”. The HCA and the courts have attached several conditions to such statements. The “up to” statement cannot function as an escape from clear and precise communication on discounts. A promotion may infringe the law even if the discount is attainable, but only for atypical products which are relevant for only a small fraction of consumers. The HCA and the courts specifically confirmed that the consumer does not (i) assume that the discount is available only in a very small number of cases, and that (ii) popular and high-priced products cannot be subject to such high discounts.

“Up to” statements are lawful if the following conditions are met:

• the maximum discount is applicable to typical products of the company;
• the maximum discount is attainable in at least 10 % of the entire portfolio of products involved in the promotion.

When assessing whether the products included in the promotion are typical, the products included in the communication must also be considered. If the promotion or sale clearly applies to a separate range of products, the products concerned must qualify as typical within this product range. 

The 10 % minimum for the products where the maximum discount is attainable represents a threshold where, according to the HCA, “a non-negligible group of consumers” could “potentially and realistically” attain the advertised maximum discount.

The practical:

The above two steps represent a technical framework which companies must consider on a case-by-case basis. Nevertheless, the HCA’s practice helps to understand the precise requirements:

• In the case of a tech retailer, it is unlawful if the maximum discount is only attainable for photo frames or phone cases, especially if the retailer attracted consumers with pictures of high-value phones and cameras in its communication. The frames and cases are atypical products.
• If the company is an online retailer with a broad general product offering, it is the sales of the company and the products featured in the communication which determine which products are typical. A football or a lamp bulb are marginal products that are purchased seldomly and by very few people, therefore these are atypical even in the case of a general offering. The same football will be a typical product, however, if the company offering the promotion sells sports accessories or if an online retailer with a general offering holds a campaign called “football days” during the football World Cup and communicates this with pictures of various sports accessories on sale.

Importantly, the HCA clarified that regardless of the above test, it will continue to investigate any behaviour which might deprive consumers of benefits based on reasonable expectations. 

Comparing prices: which prices can be compared?

The legal:

Comparing original prices to sales prices is a straightforward promotional tool. The HCA’s expectations in this regard are similarly straightforward: it is unlawful if the sales price is not applied in reality or if the original price was never in fact the price of the product. The original price must be a price which was applied directly prior to the sale by the company in a manner which is “regular”. Prices applied in a temporary manner for a short period of time cannot constitute an original price.

It is important to note that even if no original price is indicated, it is unlawful for a company to indicate a price as a “discount” offer if that price does not meet the above criteria.

The practical:

The HCA has made it clear that Hungarian consumers are highly price sensitive. Therefore, any unfair practices revolving around prices may result in an investigation due to the authority’s heightened vigilance and the cascade of complaints which are likely to land on the official’s desks.

The original price is necessarily the price applied prior to the promotion or sale, even if this was already a discounted price due to the age of the product, for example. The company cannot indicate the recommended price or the original price as applied during the launch of the product as the original price if the price was not applied directly prior to the sale or promotion as a regular price. In turn, it also qualifies as an infringement if the company temporarily raises the price of the products prior to the sale in order to indicate that price as the original price.

Ending unlawful promotions: the HCA’s vision

The HCA has published a press release together with its Alza decision expressing hope that unlawful Black Friday campaigns will cease as a result of the staggering EUR 2.4m fine and the decisions of the last few years. The above is a distilled version of the HCA’s practical guidance provided in these cases. Most of the relevant case law relates to sales prior to the Christmas holidays, which the HCA regards as a more sensitive period. Nevertheless, to ensure compliance, it is reasonable to adhere to these rules.

The above guidelines may be summarised in the following cornerstones:

• Communication – consumers cannot be expected to review and investigate the conditions behind the main messages of a communication, even if the fine print suggests it would be necessary.
• “Up to” statements – the HCA established a two-step test to ensure that the promotion or sale applies to typical products and a 10 % minimum threshold is met.
• Raising attention – distortion of the first step of the consumer’s decision-making process (misleading statement, products serving as hooks) might easily result in an infringement.
• Price comparison – only regular prices which were applied prior to the sale or promotion may be regarded as original prices.

Even if a sale or promotion meets the above criteria, an overall review is necessary to ensure that the commercial practice also meets the general requirement of professional diligence. Nevertheless, once the above boxes are ticked, a promotional or sales campaign should satisfy the main concerns raised by the HCA in the last few years.

By Andras Nagy, Attorney at Law, Schoenherr

Former Allen & Overy Counsel Tibor Szanto, who headed that firm’s EU, Competition and Telecommunications practice in Budapest, has left to become a solo practitioner, operating a Competition boutique and closely cooperating with Pontes Budapest.

Pontes Budapest describes Szanto as “a leading practitioner on the Hungarian Competition market, with in-depth knowledge of regulated industries, in particular telecommunications.” According to the firm, “he gained more than 20 years of experience in Competition law — half of this time he was wearing the hat of a regulator (including … with the European Commission, and [as] a member of the Competition Council at the Hungarian Competition Authority).” He spent the last nine years at Allen & Overy, and also spent two years with White & Case, both in Budapest.   

Szanto said he is “looking forward to this new challenge, which brings greater focus on ever closer client relationships,” and claimed that his closeness to Pontes Budapest “will allow for the exploration of a new method of cooperation opportunities, providing flexible responses to client demand.”

In 2012 a simplified lump sum tax, known as KATA, was introduced for small businesses. The rules of KATA allowed small businesses, including private entrepreneurs, to opt to pay a lump sum monthly tax of HUF 50,000 (EUR 145) per person employed by the business. Businesses paying the lump sum tax are relieved of any other income or payroll taxes. The regime is applicable to income of up to HUF 12 million (approximately EUR 34,000) revenue per year. Above this limit, a tax rate of 40% is applied to the excess.

The new tax regime quickly became popular, and in 2020, more than 300,000 businesses are using it. It also became apparent to the government that many individuals using KATA had formerly been employed by an enterprise which subsequently became the client of the small enterprise opting for KATA; in other words, KATA was being used to re-characterize employment relationships for the purpose of avoiding employment-related obligations. In particular, service sectors such as IT were affected, where the assets employed and means of work have less relevance to the outcome of the activity.

The Hungarian Government had been aware of this risk when introducing KATA, as contracting of employees through small businesses for tax-saving purposes has a long history in Hungary. Therefore, the KATA law introduced a rebuttable presumption that an employment relationship exists between a client of a small business and the person employed by the small business (including when the small business is actually a private entrepreneur).

The presumption can be rebutted if certain circumstances are proven (such as that the place of work is in the control of the “employee” or the equipment or materials used for the activity are not provided by the presumed “employer”). The circumstances for rebutting the presumption of an employment relationship, implemented as legal provisions, were crystallized by the tax authority’s long-standing practice of challenging hidden employment. Unsurprisingly, as alleged employers and employees had been preparing arguments to answer the tax authority’s inquiries during tax audits for a long time, the legal presumption of employment was not very effective in discouraging abuse. The high number of businesses applying KATA did not ease the burden on the tax authority.

During the fall of 2019, rumors spread that the Government had decided to focus on and challenge the improper use of KATA. In line with this the tax authority published 2020 auditing guidelines indicating that combatting hidden employment – and in particular, the fraudulent application of KATA – would be a focus.

The plans for extensive audits with a focus on hidden employment were apparently distracted by the COVID-19 pandemic. Nevertheless, on July 14, 2020, Hungary’s Parliament amended the KATA Act (Act CXLVII of 2012) in a way that severely limits the use of the KATA regime. The amendments, which become effective on January 1, 2021, provide that: a) if the payer of the income (i.e.,  the client of the small business) pays more than HUF 3 million to the same small business, it shall pay 40% tax on any amount exceeding this limit; and b) if the payer of the income is a related party of the small business, the 40% tax is payable regardless of the amount.

In our view these heavy-handed amendments will not achieve their intended goal. The HUF 3 million limit is low. This amount roughly equals the 2020 net average salary of an employee. There are no available statistics for typical (median) salaries, but they will be significantly lower than the average salary, so low-income sectors can still use KATA without the 40% punitive tax rate. However, in the case of genuine independent professionals, it is not uncommon for the fees for one client’s work over a period of time to exceed this limit.

The current KATA regime has been easy to manage financially and light on administration for small businesses. There is a risk that the amendments in their current form will suffocate this tax regime, because they focus on an artificial monetary limit instead of focusing on the development of more sophisticated tools for determining the genuine nature of the relationship between the parties involved.

By Balazs Kantor, Head of Tax, and Petra Rozsahegyi, Associate, Lakatos Koves & Partners

This Article was originally published in Issue 7.9 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

On August 3, 2020, CEE Legal Matters reported that Sorainen had advised Montonio on its generation of EUR 500,000 from both Estonian and international investors. CEEIHM spoke with Rasmus Oisma, Director at Montonio Finance, to learn more about the matter.

CEEIHM: To start, please tell us a few words about Montonio.

Rasmus: Montonio is an Estonian fintech startup specialized in building e-commerce checkout products. We’ve built a multi-lender based e-commerce checkout financing solution which increases approval related conversions by 40-70% and lowers customer APR rates by around 50%. During the checkout, we authenticate our customers and fetch multiple financing options for them in approximately 10 to 20 seconds. We are currently active in Estonia and Lithuania with plans to expand to a few other markets in the coming months. 

CEEIHM: The company raised EUR 500,000 in this round. What is that capital intended for and what can we expect from Montonio next?

Rasmus: We are using the capital to develop additional services as well as to expand into new markets. For example, the Bank of Lithuania just granted us a payment institution license. Furthermore, we are about to launch a new partnership that enables us to provide online credit card acquiring services. Additionally, we are expanding our existing business – we have seen rapid month-over-month growth in our revenue as well as in the number of merchant partners who use our services. 

CEEIHM: The instrument used was a SAFE type of a convertible note. What is that, why was did you choose it?

Rasmus: SAFE is an acronym for simple agreement for future equity. Developed by the US-based Y Combinator, arguably the most prestigious startup accelerator in the world. As the name hints, the instrument enables the receipt of investment at an accelerated tempo by dumbing down the legal complexities. The shares that an investor receives in return for their investment are transferred to them at a later date and the share transfer is not a precondition for closing. 

I think there are multiple reasons why that instrument has not been too common in Estonia. Historically, the seed funding for Estonian startups has been raised from local investors, for who transferring of shares was not an issue. Fortunately, foreign investors are getting more used to making direct investments into Estonian entities and thus the SAFE has become increasingly popular. We opted for the SAFE route for the same reasons – the round included foreign investors and the speed of closing was an important factor. 

CEEIHM: What did it mean in terms of negotiations that you did not have a lead investor? How did you juggle all 12 investors?

Rasmus: We treated our existing investors, all of whom participated in the round, as lead investors. Meaning that we ran the first draft of the investment instrument by them. After the existing investors green-lit the terms, the new investors got a say in the exact terms of the investment. 

During the second negotiation round that involved new investors, we negotiated with every investor on an individual basis. Fortunately, both the company and the investors were ready to make compromises. Thus, the second round of remarks by the new investors was quite efficient and only minor changes had to be made. The whole negotiation process took approximately one month. 

CEEIHM: Why did you opt to have Sorainen advise you on this and what was their mandate specifically?

Rasmus: From the get-go, we knew that we wanted to involve an external advisor for this round due to the untraditional instrument used. We inquired with a few law firms but decided to go with Sorainen due to their excellent reputation in M&A matters. They helped us with the preparation of the transaction documents and supported us with negotiations as needed.

Originally reported by CEE In-House Matters.

Former Dechert Counsel Daniel Dozsa has joined recently-established Dispute Resolution boutique Queritius in Budapest.

According to Queritius, “Daniel Dozsa is dual-qualified in Hungary and in England and Wales. He has represented the Republic of Hungary in several investment treaty disputes and continues to work for MOL in its multi-billion Energy Charter Treaty dispute with Croatia. In addition, he has extensive experience in international commercial arbitration and EU competition and regulatory disputes.”

Dozsa holds a 2005 J.D. from the Eotvos Lorand University and a 2006 LL.M. from Leiden University. Prior to joining Queritius, he spent eight years with Weil, Gotshal & Manges in Budapest and Washington, D.C., and almost five years with Dechert in London.

“We are living through turbulent times, but leaving the relative comfort of BigLaw to join Veronika and Wojciech in building a highly competitive international disputes boutique law firm was an easy decision,” Dozsa said. “They have phenomenal experience and reputation in handling high stakes disputes and I’m thrilled to join forces with them to develop what we hope to be a leading international disputes practice in the region.”

“Daniel has impressive experience advising CEE clients in complex commercial and investment disputes with their Western European partners,” added Queritius Founding Partner Veronika Korom. “He is a strong addition to the Queritius team and is ideally placed to lead our Budapest office. Daniel’s arrival allows us to further strengthen our unique offering to our clients. We are truly excited to welcome Daniel on board.” 

On 20 March 2015 the Hungarian Competition Authority (“HCA“) imposed a staggering fine on Auchan for abusing its significant market power. The HUF 1.06bln (approx. EUR 3m) fine is the highest ever imposed by the authority for the infringement of the Trade Act (Act CLXIV of 2005 on Trade). Although the decision is from 2015, the Hungarian courts put an end to the judicial review only now. The Supreme Court of Hungary has upheld the HCA’s decision in its entirety.

The HCA’s case against Auchan

Auchan required most of its non-food suppliers to pay a “discount contribution fee” between 2006 and 2014. The fee was based on the net value of the products delivered to Auchan, irrespective of actual sales figures. Normally, it ranged between 5 % and 15 % depending on the supplier, but in certain cases it spiked to 40 %. The amount was usually revised during the annual negotiations with the supplier.

The HCA has initiated an investigation to determine whether the fee constituted an abuse of Auchan’s significant market power against suppliers. The investigation showed no service behind the fee, or, at least, that the suppliers cannot point to a specific service which Auchan provides in exchange for this contribution. Some of the suppliers in fact regarded it as a straightforward listing fee.

Auchan argued that the fee is an integral part of the pricing process. It allows suppliers to apply their regular list prices vis-à-vis Auchan and to pay the fee as a separate contribution. Auchan also argued that its buyer power and market share does not allow for abusive behaviour against large international suppliers like Samsung and Procter & Gamble, as these players have significant market shares and negotiating power themselves.

In 2015 the HCA concluded the proceeding with one of the most significant fines imposed on a single undertaking in its history. According to the authority, the fee was in fact a fixed payment which Auchan required from its suppliers for featuring their products on the shelves. The Trade Act prohibits undertakings with significant market power to impose such fees, so the HCA concluded that Auchan’s practice constitutes an infringement.

Court proceedings

Auchan initiated a judicial review of the HCA decision. It argued before the Hungarian courts that the Trade Act (the prohibition of such fees) breaches European law through the restriction of basic freedoms (movement of goods and freedom of establishment). Auchan also noted that the decision shows an application of competition law which is inconsistent with EU standards and its market shares in Hungary indicate no significant market power. It also contested the fine imposed as highly excessive and based on considerations irreconcilable with the applicable administrative law.

The first instance court dismissed Auchan’s appeal. It did not find a breach of EU law and considered the HCA’s actions to be in line with the relevant administrative law requirements. 

Auchan’s appeal to the second instance court was partially successful. The higher court found the HCA’s investigation lacked certain details. It considered that the authority could not prove without a doubt that the fee was not a result of pricing negotiations and a compensation for service, but merely a charge imposed on the suppliers. As a result, the second instance court repealed the HCA’s decision and ordered a more meticulous investigation into the contracts and the relevant meetings between the suppliers and Auchan. The court instructed the HCA to repeat the proceeding and establish the specifics of the fee’s role in the contractual relationship between Auchan and the suppliers.

This ruling was turned around by the Supreme Court, which did not agree with the second instance court’s conclusion. It ruled that the HCA has correctly established the facts of the case based on the submissions of Auchan and its suppliers and the second instance court incorrectly assumed that further investigation might have led to a different outcome. Moreover, the second instance court failed to rule on all claims of Auchan. Therefore, the Supreme Court ordered a new second instance proceeding to review the outstanding claims.

As a result of the Supreme Court’s instructions, the new second instance proceeding focused on Auchan’s claims regarding the potential infringement of EU law and the potentially unlawful fine. In March 2019, the second instance court confirmed the initial dismissal of Auchan’s actions on the first instance.

The end

This decision – as announced by the HCA’s press release – has just been upheld by the Supreme Court. Therefore, after five years of litigation before the Hungarian courts, the HCA’s historically severe decision (both in terms of interpreting the law and applying available sanctions) has been confirmed.

The HCA has noted in its press release that as a result of this confirmation it will continue to investigate potential infringements against suppliers and act against larger retail chains abusing their market power.

In fact, the HCA’s recent practice does not feature cases around significant market power. The Spar decision, which similarly revolved around an abuse of significant market power, is from 2012. The Supreme Court’s ruling, therefore, might not support but rather jump-start enforcement efforts in this area.

Requirements around unfair trade practices are complex and vary among European countries. Schoenherr’s unfair trade practices info corner (available on the firm’s website) helps our clients navigate the patchwork structure of the legislation around unfair trade practices in the CEE.

By Andras Nagy, Attorney at Law, Schoenherr

The Hungarian Government, in order to join the world in data asset management and to set data economy in action in Hungary, has established the National Data Asset Agency, which commenced its activities on 1 October 2020.

The Hungarian Government adopted its Artificial Intelligence Strategy in September 2020, which includes the objective to launch Hungary’s data economy. According to Prof. Dr. László Palkovics Minister for Innovation and Technology, changes related to Artificial intelligence (AI) are inevitable in the 21^st century. Nevertheless, the extent to which a country or community can exploit the AI related benefits merely depend on “forward-looking and comprehensive planning, ambitious goals and their methodical implementation”. As a consequence, the Hungarian Government plans to prepare the economy and the society for these changes by reaching the objectives set out in the Artificial Intelligence Strategy, which includes the creation of the National Data Asset Agency.

The tasks of the National Data Asset Agency cover on one hand the opening and utilisation of public data assets within an organised framework. This task is justified by the fact that different authorities already collect a great amount of data (to perform their tasks) which could be used for other purposes as well. On the other hand, the National Data Asset Agency will support public bodies in the possession of data assets, in keeping records of data inventories, in making them available for secondary use and in developing their business models.

The National Data Asset Agency will operate as part of Neumann Nonprofit Ltd., whose clients are primarily administrative organisations. The work of the National Data Asset Agency will also help businesses to develop high value-added products, such as applications, and the citizens as well, who will be able to draw benefits from the data by making their lives and work easier.

Data should not only be considered as information that needs be protected, but also as a negotiable asset. This however, requires the creation of a new concept on data assets, which system will be developed by the National Data Assets Agency. As a result, platforms that enable transparent, clean and fair trade of private data assets will be created soon.

By Rita Parkanyi, Partner, KCG Partners Law Firm

On 14 October 2020 the Hungarian Data Protection Authority (NAIH) has released its guidance on body temperature measurement in relation to COVID-19.

In March 2020, NAIH stated that it is not possible to apply general body temperature screening. Due the current COVID-19 situation they recently revised their approach and concluded that this is now possible.

NAIH came to the conclusion that the use of diagnostic screening devices related to the measurement of body temperature in the current pandemic situation qualifies as being in compliance with the data protection principles, provided that all the following conditions are met:

• it is used in the course of allowing entry to the area or buildings owned or used by the controller;
• it is used as a protective measure uniformly with every person desiring to enter (“shell protection”);
• it is not linked to the identification of the subject of the body temperature check expressly to achieve this processing purpose; and
• it does not involve the recording, storage or transmission of data in any way.

NAIH also stated that it cannot be unambiguously concluded merely from the fact that a person’s body temperature is higher that he/she is infected with the coronavirus, hence the controller may not draw any conclusions concerning the health status of any given person based on the measurement of body temperature upon entry. The controller is only entitled to permit or refuse entry based on objective criteria specified in advance. If controller refuses entry, the further handling of the situation falls in the competence of the data subject (e.g. consulting a doctor, sick leave and sick pay, informing the workplace superior, etc.).

It is also to be noted that exceptional cases may occur when a person’s body temperature is higher than the average, e.g. because of some kind of disease or medical therapy. In such case, it is possible for the controller to accept a certificate issued by a doctor stating that the person is entitled to join the community in spite of a higher body temperature.

By Adrienn Megyesi, Partner, KCG Partners Law Firm

In 2014 Hungary introduced the advertisement tax as a direct business tax that must be paid by media content and service providers and publishers of advertisements. The tax base is the net sales revenue originating from the taxable activities in the tax year, i.e. the turnover and not the profit, and a progressive tax rate was established originally with six tax rates between 0% and 40%. After several amendments, since 1 July 2017 the tax rates were 0% up to HUF 100 million and 7.5% for the portion exceeding this amount. From 1 July 2019 the advertisement has been temporarily suspended and the tax rate was decreased to 0%.

In November 2016, the European Commission stated that the Hungarian advertisement tax is incompatible with the common market, since mainly companies with a high turnover (i.e. large undertakings) are affected by this tax. As such, it grants for smaller undertakings an impermissible advantage, thus it must be considered as State aid.

Hungary challenged the decision of the Commission before the General Court of the European Union. In June 2019, the General Court upheld the actions, annulled the Commission’s decision and declared that the fact that higher thresholds has been established by progressive taxation in respect of this advertisement tax as turnover tax, it does not itself result in the existence of a selective advantage for companies with lower turnover. The Commission brought an appeal against the judgement of the General Court before the Court of Justice.

On 15 October 2020, the opinion of Advocate General Juliane Kokott was released, proposing that the Court of Justice dismiss the Commission’s appeal and uphold the judgment of the General Court. The opinion is not binding on the Court of Justice, however, it has an important role for proposing a legal solution in the given case in complete independence. The Advocate General referred to the fundamental freedom to introduce a turnover-based progressive tax, since the amount of turnover means a neutral criterion of differentiation and it can reflect the taxable person’s ability to pay. She emphasized that a generally applicable tax law creating the reference framework would only be deemed as an aid if its design was manifestly inconsistent. However, the existence of such inconsistency could not be established by the General Court and the progressive tax rate itself does not constitute an inconsistency. The Advocate General also highlighted that the turnover-based taxation has its advantages and disadvantages, however, the appropriate tax must be determined by the given tax legislature, not by an authority or a court.

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

The economic situation caused by the coronavirus pandemic has highlighted the need for regulations that protect jobs and can respond effectively to the challenges of the economic environment and the labor market of this unprecedented time. It is essential for labor market actors to maintain and promote jobs that provide legal employment and to create such jobs as widely as possible, therefore, the Hungarian Government issued a bill about employment services, subsidies and employment supervision to the Parliament for legislation.

The objective of the bill is to increase support for employers, minimize COVID-19 impacts and aid jobseekers to respond quickly to the needs of the labor market and to make more efficient use of budgetary and European resources.

Employment promotion services and grants would be freely available to those unemployed who are looking to get a job, and those employees who need help keeping their jobs. Setting up this system would be the joint responsibility of the Government, local governments, employers and employees and their advocacy organizations together. These services can be provided by the state employment body or registered employment service organizations. Services provided by the state employment body are to be funded from the Economic Protection Employment Fund or from EU funds.

In the case of the provision of employment aid, the recipient of the aid has to enter an official contract. In case the aid was unrightfully issued, it has to be repaid by the recipient including transaction interest and default interest. If requested specifically in a case which deserves special consideration with regard to illegible subsidies already paid, the head of the public employment body would have the right to waive the need of the repayment fully or partially or the paying of transaction interest or default interest.

To promote employment, the employer assists the public employment body by notification including its need for labor and dismissing. These notifications are expected continuously, or at least at the time when a job position is taken.

With regard to the supervision of employment, the bill determines the subject regarding state supervision over the basic obligations established in the legislation on employment, the order of procedure and the legal consequences of the violation of these obligations. Minimum requirements of the legislation governing the employment relationship retention by the employer is monitored by the employment supervisory authority, which is to be appointed by the Government in a separate decree. In addition to the legal framework, detailed regulations will be contained in a government decree. If passed, the law would enter into force on 1 March 2021. In non-regulated matters, rules contained in Act IV of 1991 on the Promotion of Employment and Benefits for the Unemployed would be applicable.

By Levente Csengery, Partner, KCG Partners Law Firm