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EU begins probe into Hungarian tax breaks on interest income

European Union regulators opened a probe into a Hungarian tax break on interest income, saying the measure may give companies with international subsidiaries an unfair advantage.

The European Commission said a plan that allows companies with foreign affiliates to avoid tax on interest income „may confer a selective advantage to certain companies,” the Brussels-based agency said in a statement today. „We must ensure that fiscal measures respect EC treaty state aid rules and do not distort competition by unfairly influencing the allocation of economic activities,” Competition Commissioner Neelie Kroes said in the statement. The commission, which vets whether government grants in the 27-nation EU harm competition, could force Hungary to recover all illegal aid granted since the country joined the EU in 2004.

The case comes as the bloc struggles to eliminate taxation differences that have prompted politicians to complain that some countries are unfairly giving subsidies to attract multinational firms. Under the tax plan, Hungary allows companies to declare as income only half of the interest received from or paid to affiliated companies within a group. That measure applies only to affiliates based in Hungary.

The regulator said it has „doubts” that the plan is a general measure because it's available only to groups of companies and not to individual firms. In addition, the rules exempt small companies and financial firms. The commission said it will make a final decision after reviewing comments from „interested parties.” (Bloomberg)