Hungary’s Retail Tax is Discriminatory

February 7, 2014 Taxation in Hungary

Taxation in HungaryBUDAPEST – The European Court has confirmed that Hungary should not have taxed the consolidated profits of EU-wide retail groups with operations in the country.

On February 5th the European Court of Justice ruled that the retail tax laws in Hungary may be discriminatory, and may provide an unfair advantage to local businesses over their foreign-owned competitors.

Under the contested tax rule all retail businesses with turnovers of more than HUF 500 million in Hungary are required to pay an extra tax of between 0.4 percent and 2.5 percent on the consolidated revenue of its entire corporate group in the EU.

The Court confirmed that many of the businesses which have to pay the tax are part of larger group of retailers across the Europe, and would be required to pay a disproportionately high amount of tax in Hungary, compared to businesses which are not part of larger international groups.

Although the tax was found to be discriminatory, the Court did not rule that the measure contravened EU laws, and the government Hungary has not yet been required to return the collected tax revenues, however, the issue of the legality of the tax has now been deferred to the courts of Hungary to decide whether the tax will need to be refunded.

The tax was originally enacted in Hungary in 2010, and intended to provide a new stream of revenues for the government without increasing the tax liabilities of individual taxpayers.

Photo by: David Pursehouse