Product Fee law in Hungary now extends to foreign distance sellers – are you affected?

If the answer is yes then changes to the Hungarian law, which came into effect in January 2016, could affect your business.

What are the changes?

Legislation in Hungary imposes a “Green Tax” (Product Fee) on certain product categories that negatively impact the environment – such as electronic and electrical equipment (EEE), packaging and batteries. Until now, the tax would have principally applied to domestic Hungarian producers and importers only.

Importantly the recent amendment to the Product Fee Act (Act LXXXV of 2011) broadens the definition of “placing on the market” to also include distance selling activities. This change is to address the discrepancy that whilst the tax applied to distance sales of domestic producers, it didn’t apply to producers situated abroad selling to domestic buyers via the same method – this, the amendment argues, discriminated against domestic companies and put them at a market disadvantage.

From 2016, a product charge obligation is imposed on: “…the entity conducting the free or onerous sale of a product subject to a product charge in the context of distance selling from abroad, if said entity is subject to a VAT registration obligation pursuant to VAT legislation.” (more information here)

The Product Fee system is closely linked to Producer Responsibility of WEEE, batteries and packaging in Hungary, and due to the changes to the “put on the market” definition, UK companies selling to Hungary could now be impacted by tax, registration and reporting obligations.

Here we answer the four common questions about the Product Fee Act and compliance in Hungary:

What is the Product Fee Act LXXXV?

An environmental product charge – in essence a tax on importers and domestic producers – has been introduced on a range of products as far back as 1995.

Through various amendments, taking into account that some products also fell under the scope of EU legislation on packaging, WEEE and batteries, obligated companies eventually had the option of joining one of the 23 approved compliance scheme in Hungary and thus claim an exemption from the Product fee tax.

The Environmental Product Fee Act LXXXV came into effect Jan 2012, and significantly reformed the previous system of exemption through collective compliance. The compliance schemes were replaced by a state-controlled authority, the National Waste Management Agency (“OHÜ”) which then organized the waste collection and treatment contracts with municipalities and private recycling companies.

This not only effectively removed the collective compliance option for obligated producers of EEE and packaging, it moved producer responsibility into an almost exclusively tax based system. To confuse matters, following an investigation by the competition authority, the Hungarian Government finally abolished OHÜ in early 2015, and assigned its role to the National Environmental and Nature Protection Inspectorate (OKTF).

What are the reporting and payment obligations under the Product Fee regime?

The Product Fee Act now applies to a variety of product categories which far exceed the WEEE, battery and packaging producer responsibility waste streams.

In addition to EEE, batteries and a range of packaging materials, the tax obligation also applies to tires, crude oil products, chemical products (such as soap, deodorants and hair and beauty products), certain plastic products, office paper and paper-based advertising materials.

The Product Fee rates vary per kilogram placed on the Hungarian market, and are self-assessed. Data reporting and payment of the product fee must be submitted quarterly to the tax authority, the National Tax and Customs Authority, which also carries out product fee inspections.

The reporting scope is based on the Combined Nomenclature Customs tariff codes (2011/C 137/01) instead of the WEEE categories, battery types or packaging material categories producer may be used to from other EU regulations.

What are the WEEE, batteries and packaging takeback requirements and options?

Obligated producers have limited options for organizing waste takeback and recycling. WEEE (except category 5 – lamps, and category 8 - medical devices) and packaging takeback is now under the remit of the OKTF. Individual compliance is possible, but remains operationally and administratively complex – an unattractive solution.

Some batteries compliance schemes did survive the 2012 government cull and are in operation to take on producer obligations - membership of a battery scheme, or an approved individual solution would still qualify a company for reduced product fees, provided that collection targets are met.

Producers of lamps and medical devices (which do not fall under the scope of the Product Fee Act) can contractually transfer the waste takeback obligation on to their end users. An individual compliance option is not allowed, but producers of lamps can join compliance scheme Electro-Coord.

There are currently no collection targets, or indeed compliance schemes for medical devices.

What should I do next?

If you think your company is obligated by the amendment, then you must register with the National Tax and Customs Authority within 15 days of starting your distance selling activities to Hungary.

Producers of EEE, batteries and packaging should also get in touch with the National Environmental and Nature Protection Inspectorate (OKTF) to discuss registration requirements.

For information and support in Hungary and the Rest of Europe you can also contact our team now to book a free consultation on your compliance requirements outside the UK.

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