Press speculates (daily Magyar Hírlap) that solidarity tax law modification passed by the Hungarian government, which allows companies to deduct 100% of their R&D expenditures from the tax base of the solidarity tax (4%), is not compliant with EU rules, which allows for deduction of only 3 of total R&D spending from any tax base calculation (if tax allowance exceeds EUR0.1m or HUF26m).
Our view: We see the press speculation as neutral. We see, if only three quarter of R&D expenditures would be deductible from the tax base of the solidarity tax, Egis would have to pay HUF 90m more solidarity tax in 2007/06 and Richter HUF 190m more in 2007 according to our calculation. However, we do not intend to fold this tax burden increase to our model before the issue gains more clarification from the government.