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* Commission decision reinforces position of Hungarian primeminister
* Relations between Brussels and Budapest hit low ebb
BRUSSELS, July 23 (Reuters) - The European Commission hasdropped legal action against Hungary's special tax on thetelecoms sector, one of a battery of measures that stokedannoyance in Brussels over the prime minister's unorthodoxeconomic policies.
The announcement on Tuesday by the European Union'sexecutive, which is in charge of policing EU law, draws a lineunder a dispute with Budapest over a levy that was one of ViktorOrban's 2010 package of so-called crisis taxes.
It comes at a time when relations between Budapest andBrussels have reached a low ebb, with many officials working inthe bloc's administration frustrated by the tactics used byHungary and its leader to push through contested reforms.
The European Commission had asked Hungary to abolish itsspecial tax on telecom operators, believing it broke EU law. Itwas prompted to abandon this action, however, by an unfavourableruling from the EU Court of Justice in a similar case involvingFrance.
If a court judgment had gone against it, Hungary might havehad to pay back millions of euros in telecommunicationsrevenues.
The decision to back down will reinforce Orban's unorthodoxpolicies that have included Europe's highest bank tax andrenationalising billions of euros worth of private pension fundassets.
Central Europe's most indebted nation was pulled back fromthe brink of bankruptcy with a 20 billion euro rescue packagefrom the IMF and the European Union amid the global crisis.
Shortly after taking office in 2010, Orban abruptly endedthat programme, initiating a campaign that included the bank taxand other levies on business.
Major telecommunications companies active in Hungary includeMagyar Telekom, a unit of Germany's Deutsche TelekomAG, as well as local arms of Britain's Vodafone GroupPlc and Norway's Telenor ASA.
