The Hungarian advertising tax and the Polish turnover tax in the retail sector are in conformity with EU law, Advocate-General Juliane Kokott said in her Opinion delivered on Thursday 15 October in Cases C-562/19 and C-596/19. She proposes that the EU Court of Justice confirm the judgments of the General Court in these cases and dismiss the appeals of the European Commission.
In 2016 and 2017, the Commission had in fact declared these two taxes, based on company turnover and with a progressive scale, incompatible with the common market, as they conferred an undue advantage on small companies that were “undertaxed” and therefore constituted State aid (see EUROPE 11661/11 and EUROPE 11627/4).
Poland and Hungary challenged these Commission decisions before the EU General Court Instance, which in 2019 decided to annul them on the grounds that the two tax regimes did not confer selective advantages to companies with a smaller turnover. The Commission then appealed against both judgments of the General Court.
In her Opinion, the Advocate-General agrees with the General Court that the two taxes were not inconsistent in their design and therefore did not constitute aid.
An income tax based on turnover has advantages and disadvantages, she explains. Nevertheless, it is not for an administration or a court, but for a legislator with democratic legitimacy to weigh them up and take responsibility for them.
“State Aid law does not, in any case, require the introduction of the tax that would be most appropriate in the Commission’s view”, she stated.
Ms Kokott also notes that turnover-based income taxes are increasing in several jurisdictions, including within the EU, as the Commission is considering introducing a digital tax. However, in her view, there is no difference between the Polish tax in the retail sector or the Hungarian advertising tax and the digital tax envisaged by the Commission.
In the Advocate-General’s view, a progressive rate as such is also not inconsistent. “Progressive rates in income taxation are quite common in order to achieve taxation according to one’s ability to pay”, she says.
If the EU Court of Justice decides to follow the Advocate-General’s conclusions, this could be another major setback for the European Commission on the tax front, following the EU General Court’s ruling last July on tax benefits granted to Apple (see EUROPE 12528/1).
See the conclusions on the Hungarian tax: https://bit.ly/354leEm and on the Polish tax: https://bit.ly/319rZ70 (Original version in French by Marion Fontana)