Brussels, 05/09/2013 (Agence Europe) - In conclusions published on Thursday 5 September (in Case -385/12), European Court of Justice Advocate General Juliane Kokott asks the Court of Justice to rule that the special tax introduced in Hungary in 2010 on various types of retail trade does not discriminate against foreign companies under the freedom of establishment recognised by EU law, but may contravene the EU VAT directive (Directive 2006/112/EEC on value-added tax).
The special Hungarian tax in question is assessed on the basis of the retailer's annual turnover and is chargeable on turnover above HUF 500 million (c.€1.7 million). The progressive tax rate is 0.1% or 0.4% or, on turnover in excess of HUF 100,000 million (approximately €336 million), 2.5%. With regard to related undertakings, that is undertakings where one exercises a controlling influence over the other, the tax rate is applied not to the annual turnover of the individual undertaking but to the total turnover of all related undertakings. The tax liability of the individual undertaking then results from its share of the total turnover. Hungarian sports goods retailer Hervis regards that tax as contrary to EU law on account of its discriminatory nature and has therefore brought the matter before a Hungarian court. It is part of an Austrian group of companies which in Hungary is also active in food retailing. Because in calculating its tax liability the group's total turnover in Hungary was taken into account, the tax rate applied to Hervis was much higher than it would have been had only its own turnover been considered. Hervis claims that in the food retailing sector it is mainly foreign-owned undertakings which are affected by such aggregation. Whereas they are organised in a company group structure, Hungarian proprietors employ the franchise model, concerning which only each individual franchisee's turnover is relevant. The Hungarian court of Székesfehérvár asked the Court of Justice about the compatibility of the special tax with EU law.
Kokott takes the view that the EU laws prohibiting discrimination and laws on the freedom of establishment do not preclude a tax such as the Hungarian special tax. Hervis' group parent company is not restricted in a prohibited manner in the exercise of its freedom of establishment by the levying of the special tax; - likewise, the criterion of the amount of turnover used for taxation purposes does not give rise to any covert discrimination between residents and non-residents because it is not the case that retail companies making a high turnover are run by foreigners and low-turnover companies by Hungarians; - the distinguishing criterion of related undertakings, according to which the turnover of other companies in the group is taken into account, whereas integration in a franchise structure is irrelevant, cannot justify the assumption that there is covert discrimination. It need not be decided whether there is any covert unequal treatment of non-residents compared to residents because it may be that where its parent undertaking is non-resident, in the vast majority of cases the retail undertaking is integrated in a group company structure. In any case, for the purposes of the assessment of the Hungarian special tax on the basis of turnover, retail undertakings which are part of a franchise structure and those belonging to a company group are not in an objectively comparable situation; - the taxation only of the last link in the chain does not lead to the assumption of covert discrimination because its does not mean that products from other member states are taxed more highly than Hungarian products.
However, the law may well break the EU's VAT directive, which bans member states from levying taxes which can be characterised as turnover taxes and: “Contrary to previous case-law, that prohibition applies not only to national taxes which exhibit the essential characteristics of VAT but to all national taxes which exhibit the essential characteristics of a turnover tax and which jeopardise the functioning of the common system of value added tax by distorting the conditions of competition, whether at national or EU level.” Kokott says the special Hungarian law “fulfils what can be regarded as the defining characteristic of a turnover tax, that is, assessment on the basis of the price charged, even if it is assessed on the basis of total annual turnover. It also distorts the conditions of competition at national level. It is however not possible, on the basis of the available information, to determine whether, in addition, the tax is general in nature. It is thus finally for the Hungarian Court to examine whether the special tax is compatible with the VAT Directive.” (FG/transl.fl)