Brussels, 06/02/2014 (Agence Europe) - In a judgment on case C-385/12 on 5 February, the European Court of Justice ruled that taxation which disadvantages undertakings linked, within a group, to companies established in another member state constitutes indirect discrimination on the basis of the registered office of the companies. Such could be the case of a Hungarian tax on the turnover of shop retail trade payable by all of those undertakings on the basis of their overall turnover. According to Hungarian legislation relating to tax on the turnover of store retail trade, taxable legal persons constituting, within a group, linked undertakings, must aggregate their turnover before applying a steeply progressive rate and dividing the resulting amount of tax among them in proportion to their actual turnover.
Hervis operates sports shops in Hungary and is part of a group of undertakings whose parent company, SPAR Österreichische Warenhandels AG, is established in another member state. Under Hungarian legislation, Hervis is liable to pay a share of the special tax payable by all the undertakings belonging to the group. The application of that legislation, however, has the effect of making Hervis liable to an average rate of taxation considerably higher than that which would apply if solely the turnover of its own stores were taken into consideration. Its application to be exempted from the special tax was rejected by the tax authorities, so Hervis brought proceedings in Hungary. The Hungarian court asked the Court of Justice whether the Hungarian legislation on the special tax is compatible with the principles of freedom of establishment and equal treatment, where it has potentially discriminatory effects with regard to taxable legal persons “linked,” within a group, to companies established in another member state.
The Court of Justice says no. It says that the Hungarian legislation on the special tax differentiates between taxable persons on the basis of whether they belong to a group. Although it does not entail any direct discrimination (since the special tax is levied in identical circumstances for all the companies engaged in store retail trade in Hungary), the criterion of differentiation has the effect of disadvantaging linked undertakings compared with undertakings which are not part of a group.
The rate of the special tax is very steeply progressive, in particular in its upper band. Secondly, the special tax is calculated, for linked undertakings, on the basis of the consolidated turnover of the group, although, in the case of a legal person which is not part of a group (such as independent franchisees), the tax base is limited to the turnover of the taxable person taken individually. The Court holds that the application of that steeply progressive scale to a consolidated tax base consisting of turnover is liable to disadvantage undertakings linked, within a group, to companies established in another member state. The Court invites the national court to establish whether that is the case on the Hungarian market. If so, it is for the national court to hold that the Hungarian legislation entails indirect discrimination on the basis of the registered office of the companies, since that discrimination is not justified by overriding reasons in the public interest. (FG/transl.fl)