The judgments passed today have clearly concluded that in the future large corporations will not be able to raise objections to having to pay proportionately higher taxes than small businesses with a substantially lower economic potential.

In today’s judgments, the Court of Justice of the European Union recognised the principle of fair taxation represented by the Hungarian government. It concluded in the cases of both Vodafone and Tesco that the revenue-based, progressive, sector-specific levy that was imposed on retailers and telecommunications businesses between 2010 and 2012 is not contrary to EU law.

Vodafone and Tesco sued the Hungarian State with a view to the cancellation of their tax liabilities outstanding in the form of sector-specific levies. The Hungarian court instituted a procedure for a so-called preliminary ruling before the Court of Justice of the European Union, asking them to determine whether the sector-specific levy that was abolished in 2013 is compatible with the EU legislation on state grants and the freedom of establishment.

The main difference between the positions of the government and the large companies instituting lawsuits (and the Commission that sided with them) was that, in the government’s opinion, companies in a dominant market position which are capable of undertaking higher burdens must contribute more in the form of taxation. By contrast, the multinational companies concerned asked for the Commission’s assistance as they took the view that their burden-bearing capacity and competitive position are not in any way different from those of small and medium-sized businesses operating on the market, and so their tax burdens likewise cannot be higher than general.

According to the Luxembourg-based court, the special tax did not result in discrimination among taxpayers by virtue of treating differently an entity that is in a different factual situation. Therefore, it was in harmony with the principle of the freedom of establishment, and did not discriminate against companies with foreign owners. The Court likewise did not rule that the tax was in violation of EU law regarding state grants. At the same time, the European Court also laid down that the sector-specific special tax was not contrary to the VAT Directive either as it does not in any way resemble the common system of value added tax.




(Ministry of Finance)