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INTERVIEW-Hungary tax is just expropriation, says Bertelsmann executive

Source: Reuters - Wed, 2 Jul 2014 16:30 GMT
Author: Reuters
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* Says media tax a way to force RTL out of Hungary

* Plans court challenge

By Marton Dunai

BUDAPEST, July 2 (Reuters) - The head of media group Bertelsmann's Hungarian offshoot has renewed his attack on a special tax on the sector by the Hungarian government, telling Reuters it was no more than an attempt to force his company out of the country.

Dirk Gerkens, head since 2001 of the company whose RTL Klub channel's long-running sitcom "Among Friends" and talent show "X Factor" help make it the most-watched TV station in Hungary, said he was ready for a legal battle over the tax.

"I think war is probably an excessive word. But if there is war there is a war plan, and we have a very strong plan," Gerkens, 46, said in an interview.

Since taking power in 2010, Hungarian Prime Minister Viktor Orban has clashed with his European Union partners and foreign investors over policies ranging from media reforms to "windfall" taxes on specific sectors of the economy.

The government has levied a tax on media companies rising to 40 percent on revenue above 20 billion forints ($87.9 million) per year - a level only RTL Klub has produced.

The government has said the aim of the tax is to stop profitable multinational media companies from avoiding taxes. But RTL Hungary says it is the target of what Gerkens called expropriation.

Gerkens, who helped start RTL Klub in 1997 when commercial terrestrial television was first introduced in post-communist Hungary, said his company would fight the measure tooth and nail.

"I think it's an attempt to kick us out of the market ... To clearly get rid of one of the last free mass media (outlets) with a free expression," he said in his office overlooking the leafy suburbs of Budapest.

But he said the broader group had the resources to defend itself.

"We represent around 1 percent of RTL's profit, so I don't think RTL Group would suffer excessively from the Hungarian disruption," he said. "I think the shareholders are absolutely willing to go as far as they need to go."

SOLID CASE

That will probably entail a lawsuit challenging the tax in an international court, Gerkens said. "It's a completely discriminatory tax, with an unseen scale in terms of percentages clearly targeted at us. The fact that it is hurting a foreign-owned company is also interesting ... It is a very solid case. It might take time, but we have time."

Responding to the comments, the Economy Ministry said in an emailed statement: "The modification of the advertising tax law prevents profitable multinational media companies from avoiding taxes on account of fictitious losses."

The tax could also apply to TV2, RTL's domestic rival, but this year loss-making TV2 receives a tax break on earmarked carry-forward losses, reducing its obligation to near zero.

RTL would also have been eligible for such a tax break because of its purchase in 2011 of two cable companies which it passed to its parent company a year later at a loss. But earlier this week an amended bill made the break exclusive to companies that were unprofitable in 2013, when RTL made a profit.

Gerkens said that manoeuvre proved the tax was aimed at RTL.

"TV2 doesn't have to pay. We have to pay. (The government) amended (the law) in one week because they realised the mistake that they made ... it's a farce. It's a big circus. It's ridiculous."

Gerkens said squeezing RTL out of the market would be possible via a takeover by people friendly to the government. "(The government) want to either get rid of (RTL) or get it into more friendly hands ... There was an urgent need to make RTL bleed financially, and this was the main purpose (of introducing the tax)."

He said there were potential buyers who would like to take over RTL from Bertelsmann but declined to name them.

The government has also started a tax probe against RTL to establish whether the company had fabricated losses of about 23 billion forints on the cable deals to avoid having to pay taxes.

"The tax office was already rushing to come here in a quite aggressive manner," Gerkens said. "Obviously when they are pushed by someone they are very fast in taking action even in the middle of summer ... I think it's a very bad precedent what happened here with us because it's a clear attempt at expropriation." ($1 = 227.6000 Hungarian forints) (Editing by David Holmes)

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