12003TN10/04

4. COMPETITION POLICY

Treaty establishing the European Community, Title VI, Chapter 1, Rules on Competition.

1. 3bn and 10bn HUF fiscal aid schemes

(a) Notwithstanding Articles 87 and 88 of the EC Treaty, Hungary may apply corporate tax benefits granted prior to 1 January 2003 on the basis of Articles 21(7), (10) and (11) of Act LXXXI of 1996 on Corporate Tax and Dividend Tax and Article 93 of Act CXXV of 1999 on the Budget of 2000 of the Republic of Hungary, under the following conditions:

(i) for small and medium-sized enterprises, as defined in accordance with the Community definition [2] of such enterprises and in conformity with Commission practice, up to and including 31 December 2011;

In the event of a merger, acquisition or any similar event which involves the beneficiary of a tax benefit granted under the aforementioned legislation and falling under this paragraph (i), the benefit from corporate tax shall be discontinued.

(ii) for other undertakings, provided the following limitations on the aid amounts granted under the aforementioned legislation are respected:

(aa) State aid for regional investments:

- the total investment aid shall not exceed a maximum of 75 % of the eligible investment costs if the undertaking started its investment under the scheme prior to 1 January 2000. If the undertaking started its investment under the scheme during the years 2000-2002, the total investment aid shall not exceed a maximum of 50 % of the eligible investment costs;

- if the undertaking is active in the motor vehicle sector [3], the total investment aid shall not exceed a maximum of 30 % of the eligible investment costs if the undertaking started its investment under the scheme prior to 1 January 2000. If the undertaking started its investment under the scheme during the years 2000-2002, the total investment aid shall not exceed a maximum of 20 % of the eligible investment costs;

- the period for calculating the aid to be included under the abovementioned ceilings of 75 % and 50 % (30 % and 20 % in the case of the motor vehicle sector) shall start on 1 January 2003; all aid claimed and received on the basis of profits that precede this date shall be excluded from the calculation;

- there shall be no requirement to reimburse the aid if at the date of accession the undertaking already exceeded the applicable ceilings;

- for the purpose of calculating the total aid, account shall be taken of all aid granted to the beneficiary in relation to eligible costs, including aid granted under other schemes and irrespective of whether the aid is granted by local, regional, national or Community sources;

- eligible costs shall be defined on the basis of the criteria arising from the Community rules applicable to regional investment aid;

- the eligible costs that may be taken into account are those incurred between 1 January 1997 and 31 December 2005 under the terms of a programme formally adopted by the company no later than 31 December 2002 and notified to the Ministry of Finance of the Republic of Hungary by 31 January 2003.

(bb) State aid for training, research and development, employment and environmental investment:

- the aid shall not exceed the relevant aid intensity ceilings applicable on 1 January 2003 to such aid objectives pursuant to Articles 87 and 88 of the EC Treaty;

- the period for calculation of aid to be included under the applicable ceilings shall start on 1 January 2003; all aid claimed and received on the basis of profits that precede this date shall be excluded from the calculation;

- there shall be no requirement to reimburse the aid if at the date of accession the undertaking already exceeded the applicable ceilings;

- for the purpose of calculating the total aid, account shall be taken of all aid granted to the beneficiary in relation to eligible costs, including aid granted under other schemes and irrespective of whether the aid is granted by local, regional, national or Community sources;

- eligible costs shall be defined on the basis of the criteria arising from the Community rules applicable on 1 January 2003 to the aid objective concerned;

- the eligible costs that may be taken into account are those incurred between 1 January 1997 and 31 December 2005 under the terms of a programme formally adopted by the company no later than 31 December 2002 and notified to the Ministry of Finance of the Republic of Hungary by 31 January 2003.

(cc) In the case of investment by the beneficiary in relation to public infrastructure, the aid shall be limited to 100 % of the costs incurred up to and including 31 December 2002.

The transitional arrangements set out in this paragraph shall not come into effect if the conditions set out above have not been met.

(b) Any aid granted under the aforementioned legislation, which is not brought into compliance with the conditions set out in paragraph (a) by the date of accession, shall be considered as new aid, pursuant to the existing aid mechanism laid down in Annex IV, Chapter 3 on Competition Policy, to this Act.

(c) Hungary shall supply to the Commission:

- two months after the date of accession, information on the fulfilment of the conditions set out in paragraph (a) above;

- by the end of June 2006, information on the eligible investment costs effectively incurred by the beneficiaries under the aforementioned legislation, and on the total aid amounts received by the beneficiaries.

2. Off-shore scheme

(a) Notwithstanding Articles 87 and 88 of the EC Treaty, Hungary may apply corporate tax reductions granted prior to 1 January 2003 on the basis of Articles 4.28 and 19(2) of Act LXXXI of 1996 on Corporate Tax and Dividend Tax up to and including 31 December 2005.

(b) In the event of a merger, acquisition or any similar event, which involves the beneficiary of a corporate tax reduction granted under the aforementioned legislation falling under (a) above, the reduction from corporate tax shall be discontinued.

3. Local authority fiscal aid

(a) Notwithstanding Articles 87 and 88 of the EC Treaty, Hungary may apply, up to and including 31 December 2007, local business tax reductions of up to 2 % of the net receipts of undertakings, granted by local government for a limited period of time on the basis of Articles 6 and 7 of Act C of 1990 on Local Taxes, as amended by Article 79(1) and (2) of Act L of 2001 on the Amendment to Financial Laws, as amended by Article 158 of Act XLII of 2002 on Amendment of Acts on Taxes, Contributions, and Other Budgetary Payments,

(b) Undertakings benefiting from Article 21(7), (10) or (11) of Act LXXXI of 1996 on Corporate Tax and Dividend Tax or Article 93 of Act CXXV of 1999 on the Budget of 2000 of the Republic of Hungary, or from aid schemes that are not compatible with Articles 87 and 88 of the EC Treaty, shall not be entitled to the transitional arrangement under (a) above.

[2] Commission Recommendation 96/280/EC of 3 April 1996 concerning the definition of small and medium-sized enterprises (OJ L 107, 30.4.1996, p. 4).

[3] Within the meaning of Annex C of the Community Multisectoral framework on regional aid for large investment projects framework for state aid to the motor vehicle industry (OJ C 70, 19.3.2002, p. 8).

--------------------------------------------------