The procedure of the European Commission against Hungary for failure to fulfil obligations concerning the special taxes of the telecommunication and the retail sectors and the holiday and meal vouchers entered into its second phase raising a question as to whether the amendments concerning local business tax and insurance tax accepted on 19 November 2011 (Monday) are facing similar procedures also?
The European Union issued a so-called reasoned opinion on the above tax matters after giving Hungary an opportunity to present its comments. The purpose of the procedures of the Commission for the member states to ensure the proper application of EU law in the interest of citizens and enterprises.
Telecommunication tax, retail crisis tax – more favourable treatment?
Accordingly, the European Commission officially called Hungary to modify the rules of the special taxes applied in the retail and the telecommunication sectors. The Commission takes the view that these tax types are discriminative as they place a disproportionately heavy burden on foreign service providers. Hungary obliged all retail and telecommunication companies to pay an increased amount of tax on their annual turnover. In the Commission’s opinion, due to the determined tax rates and the structures of these two markets, domestic companies are practically given preferential treatment and the taxes mostly burden companies in foreign ownership.
The Commission finds that this violates the freedom of establishment provided in the EU treaties and, for this reason, it calls Hungary to alter the legal regulation and to harmonize it with EU law within two months. In the case of failure to fulfil this obligation, the European Commission may refer the cases to the Court of Justice of the European Union. We have to mention in this regard that the telecommunication tax referred to above was applied from 2010 and was eliminated as of the end of this year but it was replaced by the telephone tax (minute tax) as well as the public utility tax.
A case concerning the special tax imposed on the retail sector is already in progress at the Court of Justice of the European Union (case no. C-386/12),which was initiated by a Hungarian retail enterprise. The enterprise took the view that the special tax of the retail sector contradicted EU law as this type of tax had a more unfavourable impact on enterprises in foreign ownership that on the companies in Hungarian ownership. The action argues that discriminative taxation can also be established as the Hungarian enterprises operating in a franchise structure gain an unjustified competitive advantage through this method of taxation. In this regard, the action filed seems to be in line with the procedure initiated by the Commission for failure to fulfil obligations.
Telecommunication tax – challenged doubly
In March 2012, the Commission filed a separate action for failure to fulfil obligations with the Court of Justice of the European Union (case no. C-462/12) in relation to the special tax of the telecommunication sector based on the Authorization Directive of the EU. According to the telecommunication regulations of the EU, charges imposed specifically on an industry may only serve the covering of the costs incurred in relation to the regulation of such industry and may not serve as a means of increasing internal revenue. If a higher burden is placed on telecommunication service providers, this may have an effect on consumers’ bills, it may distort competition and may discourage investors from investing in a sector which should function as a driver of growth according to the Digital Agenda for Europe.
Meal and holiday vouchers
Today the European Commission also took a stand and instructed Hungary to ensure the freedom of establishment and the freedom of services for the issuers of meal and holiday vouchers. Accordingly, Hungary was called to fulfil its obligations deriving from the Treaty on the Functioning of the European Union and Directive 2006/123/EC on services in the internal market (Services Directive) eliminating unjustified and disproportionate restrictions. This instruction of the Commission is also formulated in a reasoned opinion issued in the EU procedure for failure to fulfil obligations – as described regarding the taxation of the telecommunication and the retail sectors. If a satisfactory reply from the public administration authorities is not received within four weeks, the Commission shall refer the case of Hungary to the Court of Justice of the European Union.
Is there trouble with local business tax and insurance tax already?
Based on the above, also taking into account the arguments of the European Commission regarding the retail and the telecommunication tax – the question arises whether the provisions of the latest tax package for 2013 to be voted on on Monday concerning local business tax and insurance tax also contradict EU law as, based on the structure of the system, the tax liability of companies in foreign ownership is likely to be higher, which undoubtedly has a distorting effect on competition.
