European Broadcast Giant RTL: New Ad Tax in Hungary to Hit Profits

RTL Group
RTL Group co-CEO Anke Schaferkordt

RTL Hungary says it is the Eastern European country's only media company to be taxed at the top rate of 40 percent after ‎owner Bertelsmann recently argued the government was out to destroy its business.

LONDON ‎— A new advertising tax in Hungary will affect the profitability of Bertelsmann-owned European broadcast giant RTL Group and push RTL Hungary to a loss, the company said Monday.

The law is expected to become effective in August and requires first payments by RTL Hungary later that month, the firm said. It would force the company to pay a rate of up to 40 percent of its revenue.

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RTL Hungary will be the Eastern European country's only media company to be taxed at the top rate, the company said. RTL owner Bertelsmann recently argued that the Hungarian government was out to destroy its business.

"Operationally, RTL Group continues to perform strongly in 2014. However, our first assessment shows the severe impact of the new advertising tax in Hungary," said RTL Group co-CEOs Anke Schaferkordt and Guillaume de Posch on Monday. "It will force RTL Hungary in a structurally loss-making position and will also reduce RTL Group's net profit in 2014."

They added: "Since 1997, RTL Group has consistently built up a very valuable asset in Hungary, employing more than 350 people and investing in local entertainment and independent news reporting. And we have paid significant amounts of taxes in Hungary. We are determined to pursue all options to protect our asset against this confiscatory tax. Our announcement today sends an alarming signal for all international investors in Hungary. We thus call on the Hungarian government, again, to revise this counter-productive tax policy seemingly specifically aiming at RTL, as it undermines its operations and raises major concerns about the freedom of journalism in Hungary."

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Based on its preliminary assessment, RTL said its tax charges would increase by approximately $20.4 million (€15 million) on a full-year basis. In 2013, RTL Hungary generated an operating profit of that size on revenue of $136 million (€100 million).

Given the size of the new ad tax, RTL Group also said it expects to have to record an impairment in its half-year earnings report.

The 40 percent tax rate kicks in on revenue above $88 million. RTL's Hungarian unit controls around a quarter of the local TV ad market.

Bertelsmann has accused Prime Minister Viktor Orban's government of trying to destroy its business. Since taking power in 2010, the right-wing populist has repeatedly clashed with independent media as well with his European Union partners over what critics have described as a crackdown on media freedoms.

The government said the law was not aimed at any single company.

Twitter: @georgszalai