Hungary retail turnover tax contravenes EU VAT

Sat 7th Sep 2013

Hungary has won a partial victory with the European Court of Justice to allow it to continue to tax certain retailers on their sales.  The Advocate General (the stage before a formal European Court of Justice case) found that this tax did not contravene EU laws, but may create a conflict with the EU VAT Directive.

In 2010 Hungary introduced a special tax on retailers – both domestic and foreign controlled – at rates ranging from 0.1% to 2.5% of sales.  It has also raised the Hungarian VAT rate from 25% to 27%, the highest EU VAT Rate in the European Union.

An Austrian retailer, with outlets in Hungary, claimed that the tax unfairly penalised them as a foreign retailer.  The ECJ disagreed with this and that there were no discriminator elements to local vs foreign retailers, but Hungarian VAT rules were a different issue.

Hungarian retail tax contravenes EU VAT

However, the ECJ did highlight that turnover taxes may be in contravention of the EU VAT Directive, and that the Hungarian tax authorities and courts should reconsider its legitimacy on this basis.