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Audi, Hungary reach tax deal

Germany's premium car maker Audi and the Hungarian government have reached an agreement on a tax allowance and Audi is set to go ahead with its investment in the country, a senior government source said on Wednesday.

"They gave their nod and all parties stood up from the table with the understanding that this is a satisfactory deal ... and Audi got what it wanted to go ahead with the investment," the source told Reuters. The source stressed this was not a separate deal with Audi and that it would "apply to every company in Hungary". "And we are in talks with two or three major investors who plan to locate research centres here, and we think this could tip the balance," he added. According to a Wednesday report by local broadsheet Népszabadság, the government is to allow companies to reduce the tax base of the new "solidarity tax" with research and development expenditure.

The solidarity tax is 4% of pre-tax profit. The new tax, which was implemented on 1 September, is part of the government's austerity package aimed to slash the huge budget deficit to 3.2% of GDP by 2009 from 10.1% this year, and it is hoped to bring Ft 150 billion to state coffers next year. The estimated loss stemming from the allowance was put to around Ft 4-5 billion, given that corporates spent some Ft 100 billion on R&D last year. Audi called off its investments in Hungary on 20 October , objecting to the solidarity tax and other government measures, as it had been granted corporate tax (16% currently) exemption until 2011. Martin Winterkorn, Audi's Chairman, was scheduled to visit Hungary on 10 November to meet with Prime Minister Ferenc Gyurcsány and discuss the current situation. (portfolio.hu)