bne IntelliNews -

The European Commission has launched a probe into Hungary’s advertising tax over concerns that it may breach EU state aid rules, the EU executive announced on March 12. Pending the results of the "in-depth investigation", the commission said it has ordered Hungary to suspend the levy.

The Hungarian government controversially introduced a progressive advertising tax on media companies last year. The rate of the tax ranges from 0%-50% based on revenue. The 50% levy applies only to RTL Klub, the country's largest commercial TV station, which is owned by German giant Bertelsmann.

“A progressive tax based on turnover places larger players at a disadvantage, unlike a progressive tax based on profits, which can be justified by the higher burden-bearing capacity of very profitable companies,” the commission said in a statement.

It added that the commission’s investigation does not call into question Hungary's right to introduce an advertisement tax, but has “to verify that such a tax does not selectively favour certain companies over their competitors".

The EU investigation follows a complaint by RTL. The company said earlier this month that its full-year net profit plunged 25% partly because of the Hungarian tax.

Under pressure from Brussels - as well as German Chancellor Angela Merkel, according to reports - the Hungarian government already said earlier this year it will adapt the progressive tax to a flat levy. Officials have suggested Budapest plans to implement a charge of 3%-5%, however, it will still be based on revenue. Media companies maintain that the tax still hits media freedom.

Local media has also suggested that the climbdown followed a behind-the-scenes deal agreed in January with RTL, just ahead of a visit by Merkel to Budapest. The government reportedly offered to cut the tax in return for less critical news coverage from Hungary's top commercial broadcaster. This should help the ruling party prop up support, with approval ratings having plunged in recent months amid unpopular measures and corruption allegations.

The removal of RTL Klub CEO Dirk Gerkens was also reportedly part of the deal, which all parties have vehemently denied has ever been discussed. However, this week, the company announced the highly outspoken channel chief has left. A temporary replacement is holding the fort while the German company searches for a local executive to take over, "in order to further strengthen RTL group's ties with Hungarian society".