Kester Eddy in Budapest -

Dirk Gerkens, chief executive of RTL Klub, Hungary's most popular commercial television station, has hit back at government accusations of tax evasion, denying any accounting wrongdoing and accusing the authorities of “further harassment” against RTL “for being a free media.”

“We didn't do any kind of tax cheating. We have carried forward losses in our books, which are audited every year by PwC [the international corporate services firm],” Gerkens told bne in an interview.

Gerkens was responding to comments by Mihaly Varga, Hungary's economy minister, who told a press conference on June 25 that he had ordered NAV, the tax authority, to audit RTL on suspicions that it had booked “fictitious transactions” in order to avoid paying corporate tax last year.

According to Index.hu, a leading Hungarian website, Varga said: “there is one media player that wants to wriggle out of carrying the just and mutual public burden” - a reference to Magyar RTL, the local owner of RTL Klub.

Varga later told the state news agency MTI that he was referring to transactions that had reduced RTL's tax base by HUF23bn (€75m) in 2013, but that if all was in order, the company could “sit calmly and await the audit.”

New law

The dispute is the latest incident in the increasingly bitter row between the government and RTL Klub sparked by the new advertising tax legislation, passed by the Hungarian parliament earlier this month and signed into law by Janos Ader, the Hungarian president, on June 17.

The new law is widely seen to be aimed at Magyar RTL, the Hungarian subsidiary of Luxembourg-based RTL Group, as it is the only media company which has advertising revenues above HUF20bn (€ 66m), the threshold level which attracts the maximum tax rate of 40%.

It's a point not lost on Gerkens. “When you look at how the tax is designed, it's clearly meant to hurt us the most, because it will tax our turnover - not profit - at 40%. This is unseen in the world,” he declared.

Under the previous tax regime, RTL's Hungarian operations had been a money-spinner, netting profits of “around HUF4bn” last year, although most of this originated from the group's cable operations rather than its flagship channel, RTL Klub.

But the move to call for a tax audit is purely to cover up what Gerkens claims is a botched job by ministry officials in the legislative process. “They did this last minute tax exemption [amendment] which allowed a company to reduce the tax base by 50% of the previous year's losses. This was intended to help TV2 [our principle competitor], but what they didn't know was that I also have carry-forward losses,” he says.

As a result, Magyar RTL will see its 2014 half-year tax payment reduced from an estimated HUF2.25bn (€7.4m) to around HUF600m (€2m).

While that's good news in theory for RTL, Derkens told bne he had expected a negative reaction. “It [the tax audit] is a clear step of further harassment against RTL for being a free media. It's obvious,” he said, noting that the latest threat comes after Janos Lazar, minister for the Prime Minister's Office had labelled the company “corrupt”, while on June 23 Napi Gazdasag, a business daily with close ties to the government, had headlined a story alleging RTL Klub directors had received massive end-of-year bonuses totalling HUF1.6bn (€5.3m). The paper later admitted it had over-valued the payments by a factor of 1,000 due to a printing mistake.

“Even if it was HUF1.6bn for 14 people, it's none of their business, because if a private company wants to remunerate its managers like this, that's a question for shareholders. But it was HUF1.6m [around just €375 per person]. That's not a story, but they wanted to see a big number,” he said.

Despite the alleged harassment, Gerkens, who has been with RTL Klub for its entire 17 years in Hungary, said the owners were “not in the mood” to leave the country, although an additional full-year tax burden of some HUF4.5bn to be paid in 2015 would mean losses and an “obvious restructuring” of business operations.

One option would be to raise advertising rates, which at peak times are 33-50% lower than those in neighbouring Poland and the Czech Republic, so the market “can obviously take” an increase, Gerkens argued, although no business decision has been taken on the issue.

He insists that RTL has not only kept strictly to the law, but that it is a “massive” tax payer, contributing almost HUF9bn (€29.5m) in total contributions to state coffers last year.

Asked if the broadcaster was considering taking the tax dispute to court, Gerkens replied: “Sure, in Hungary and abroad, but I don't want to disclose the legal strategy.” Does this mean possible legal action at the EU level? “In the EU and outside the EU,” he said.