Modified corporate tax law helps sports clubs hide spending

June 27, 2017

“Felcsút, we have a problem!”

A recent modification to Hungary’s corporate tax law will let sports associations conceal which companies offer them their tax and how the money is spent, reports Hungarian daily and news site Magyar Nemzet.

Until now the corporate tax law that was created to allow billions of tax revenue to flow uncontrollably into spectator sports associations only permitted public benefit foundations to receive such payments. This is about to change with the removal of “public benefit” from the law’s text.

The only purpose of the modification of a two-line paragraph of the law appears to be to help the Foundation for the Upbringing of Youth of Felcsút (FUNA), the public benefit foundation behind the Puskás Football Academy, hide information about their corporate tax income and spending, since public benefit foundations have stricter obligations to provide information than simple foundations, Magyar Nemzet’s sources say.

The official justification for the modification was to make the corporate tax consistent with certain regulations of the sports law. However, sources highlighted the strange timing of the modification. In February, former prime minister Ferenc Gyurcsány’s Democratic Coalition (DK) party won a lawsuit in which it requested detailed information regarding corporate tax spending of FUNA. According to the Budapest-Capital Regional Court of Appeal’s decision, FUNA must publish the contracts of those investments that were financed from corporate tax, since FUNA is a public benefit foundation. As FUNA appealed to the Curia (the highest court in Hungary), the contracts have not been published yet.

FUNA was founded by Prime Minister Viktor Orbán and is estimated to have received HUF 12 billion (USD 44 million) since the corporate tax law’s adoption in 2011.

It would not be surprising if FUNA removed “public benefit” from its name in the near future, concludes Magyar Nemzet. However, there might be an easier solution for Felcsút mayor and Orbán associate Lőrinc Mészáros to cover up Puskás Academy’s corporate tax spendings as he is also the president of the Felcsút Sports Association, a non-public benefit sports foundation. Although Mészáros could decide to accept corporate tax payments through Felcsút Sports Association from now on, FUNA would still have to publish the contracts if the Curia upholds the second-degree court’s verdict as the law does not have retrospective effect, according to Transparency International project leader Gyula Mucsi.

“The government created the corporate sports sponsorship system in a way that enables sport clubs favored by politicians to gain uncontrolled access to funds that reduce the state’s tax revenues, and to do so in a manner that is completely legal,” Mucsi summarized the findings of a 2015 Transparency International report on the original law.

The recent modification also included recognizing volleyball as a spectator sport. This modification was initiated by Fidesz MP Erik Bánki, whose wife happens to be the chair of the Hungarian Volleyball Association.