The European Commission has formally requested Hungary to change its tax law provisions which limit the granting of a tax incentive to taxpayers who engage in research or development activities performed on premises located in Hungary.

According to the Commission press release:

“Under Hungarian Law, basic research, applied research or experimental development services performed on premises managed by a research institution (research facility) founded by a Hungarian institution of higher education or the Hungarian Academy of Sciences are treated more favourably than similar R&D activities performed on similar premises located in other EU Member States or EEA/EFTA countries.”

In addition, the European Commission has launched an investigation under EC Treaty state aid rules into an investment aid granted by Hungary to Dunaferr, the largest Hungarian steel producer.

In January 2007, the Hungarian authorities submitted information to the Commission on the basis of the applicable 2002 Multisectoral Framework on Regional Aid for Large Investment Projects (see IP/02/242), which indicated that Dunaferr had been awarded an investment aid of €37.4 million in December 2006. The Hungarian authorities granted the aid under an aid scheme previously approved by the Commission, which establishes tax incentives to ensure productive investment in the less developed regions of Hungary.

The Commission has serious doubts whether the aid to Dunaferr respects the provisions of the 2002 Multisectoral Framework which prohibits aid for investment projects in the steel industry because of the structural overcapacity of this sector. The Hungarian authorities argue that the aid concerns only products which are not part of the steel sector. No doubt the outcome of this investigation will impact on the Irish Government's decisions for granting state aid.