Quote: EU Firms Seek EU Support To Reverse Hungarian Special Taxes

By Margit Feher and Sean Carney

Of DOW JONES NEWSWIRES

The European Union is investigating the special taxes Hungary levied on three sectors to meet budget deficit targets, and the taxes should end as planned in 2013, the European Commission said Monday.

"We have to investigate first," EU spokesman Olivier Bailly told reporters. "This is what we're doing now."

Major foreign companies operating in Hungary are seeking European Union support to make Hungary reverse the extraordinary sectoral taxes it has levied to meet budget deficit targets.

The companies' joint letter, obtained Monday by Dow Jones Newswires, stated: "Being a member state of the EU, Hungary must be induced to withdraw these unjust burdens. Such a withdrawal would restore the trust of companies active in Hungary and would also prevent a burden being imposed on other economic sectors in the country."

Bailly said the EU Commission sent a letter to the Hungarian authorities Oct. 22 requesting more information on the taxes, two months before receiving the letter from the companies.

"So far, we have no evidence that it (the extra taxes) will be extended beyond 2013," Bailly said.

The letter was sent on behalf of 13 companies in December, addressed to European Commission President Jose Manuel Barroso. Hungary is occupying the presidency of the EU for the next six months.

"It can be assumed that no improvement in the situation can be expected by the end of the Hungarian mandate in summer next year," the companies said.

Hungary levied hefty taxes on energy, retail and telecommunications firms in 2010 to meet its budget-deficit targets and get out of the European Union's excessive deficit procedure. It has also levied extra taxes on the financial sector, limited the powers of the Constitutional Court on tax matters so that affected companies can't appeal the steps, and effectively nationalized its private pension funds to generate additional budget revenues.

"With the economic policy of the (Prime Minister) Orban government, the economic downward trend could not be changed and there are fears conditions are further deteriorating," the companies said in the letter, after detailing the above measures.

The companies that signed the letter are insurers Aegon AG (AEG), Allianz SE (ALV.XE) and AXA SA (CS.FR), Austrian home improvement firm bauMax AG, Czech energy firm CEZ (BAACEZ.PR), German utilities E.ON AG (EOAN.XE), RWE AG (RWE.XE) and EnBW Energie Baden-Wuerttemberg AG (EBK.XE), telecommunications company Deutsche Telekom AG (DTE.XE), Austrian oil and gas company OMV AG (OMVKY, OMV.VI), Dutch financial group ING Groep NV (ING), Austrian retailer SPAR Oesterreichische Warenhandels AG, and German retailer REWE Group.

The companies also objected that sectors with fixed infrastructure such as telecom, energy and retail networks are exclusively affected by the tax measures while sectors which could easily move their businesses from Hungary such as the automotive sector are receiving tax concessions and incentives for further investments.