In the past few days, the news came to light that the European Commission launched an infringement procedure against Hungary in October 2024 due to the special retail tax. Written by Zoltán Lomnici Jr.
The Hungarian government introduced – and still maintains today – the special retail tax based on the consistent belief that tax burden distribution based on any tax regulation can only take place under the basic law requirement of the taxpayers' ability to bear the burden.
The obligation to bear public responsibility is one of the basic obligations, found in the Freedom and Responsibility In the absence of this obligation, the operation of the democratic rule of law would become unsustainable, because the necessary financial resources would not be available for the performance of public duties.
[…] In terms of carrying capacity, the carrying capacity of the individual and that of economic organizations must be the subject of a separate assessment, in the case of the latter, the carrying capacity is based on a broader basis, since the existence of a minimum level of economic carrying capacity – in contrast to the possible lack of individual carrying capacity – the carrying out of farming activities it can be presumed, however, its extent may vary from case to case - states one of the decisions of the Constitutional Court.
The robed body also stated that Basic Law XXX. it follows from paragraph (1) of Article:
"the legislator has a wide discretion in terms of what type and amount of tax he imposes on which group of subjects. The only constitutional limitation is that it must take into account the capacity to carry a load and the degree of participation in the economy, that is, it cannot financially disable the taxpayer."
Taking into account all these important constitutional requirements, the government maintains the retail tax with a band rate system projected on the sales revenue of the retail activity, i.e. established in a progressive manner - and indirectly causing a positive environmental impact; the taxation of consumption is of great importance for environmental protection, since much higher consumption generally results in more negative environmental effects and higher emissions.
According to § 6 of the Retail Tax Act, companies with higher sales revenue are taxed at a higher tax rate, which is in line with Article XXX of the Basic Law of Hungary (Basic Law). with its article, which declares the principle of public responsibility. This ensures that larger companies take on a proportionally larger share of community spending, as their carrying capacity is greater thanks to their outstanding income. The Basic Law According to Article O), everyone is responsible for himself and is obliged to contribute to the performance of state and community tasks according to his abilities and opportunities.
§ 3 of the Retail Tax Act does not differentiate between domestic and foreign companies, which provision is thus in line with Article 49 of the EU Treaty (freedom of establishment), which prohibits discrimination on the basis of seat. Pursuant to § 2, the scope of the law also extends to foreign companies, ensuring equal conditions of competition, which is in line with Article 107 of the EU Treaty, which is intended to eliminate measures of Member States that distort competition.
The individual detailed rules
197/2022. (VI. 4.) The new tax rates can be found in Section 21 (3) of the Government Decree on Extra-Profit Taxes. The retail tax law includes the old ones. Comparing the 2020 and current tax, it can be seen that only the tax rates have changed, so it is essentially the same as in 2021:
2020 – The band-wise progressive tax rates were as follows:
• Sales below HUF 500 million: 0%
• HUF 500 million – 30 billion: 0.1%
• HUF 30 billion – 100 billion: 0.4%
• Sales revenue over HUF 100 billion: 2.5%
2024 – The tax rates have changed and are also progressive in bands:
• Sales below HUF 500 million: 0%
• HUF 500 million - 30 billion: 0.15%
• HUF 30 billion – 100 billion: 1%
• Sales revenue over HUF 100 billion: 4.5%
According to the argument of the Ministry of National Economy, the purpose of the special retail tax is for businesses to offer high-quality products at an affordable price, keeping in mind the interests of Hungarian consumers. Companies that unfairly overprice their products and thus harm families are not desirable in the Hungarian economy.
The government will take action against unjustified extra profits and unfair market behavior with all means at its disposal, so that the special tax serves to curb such companies and prioritizes the protection of Hungarian families.
In order to protect families and the reduction of utility bills, extra profit taxes were introduced in those sectors - such as retail trade, the energy sector and the banking sector - where they were generated," said the Ministry of National Economy.
The 2020 EU court ruling
The body acting in the Grand Council of the EUB is C-75/18. and C-323/18. no. in its judgments in the case, announced on March 3, 2020, it clearly stated that the Hungarian special tax regulation complies with European Union standards, confirming that individual member states are free to define the taxation system they deem most appropriate and to apply progressive taxation with regard to sales revenue , as long as the amount of sales revenue is considered a neutral distinguishing criterion and can be considered a relevant indicator regarding the burden-bearing capacity of taxpayers.
In this context, the judicial body highlighted:
the fact that the majority of the special tax in question is borne by taxpayers owned by natural or legal persons of other Member States is not sufficient to establish that there is discrimination against them.
The ne bis in idem principle is declared by Article 50 of the EU Charter of Fundamental Rights and Article 54 of the Schengen Implementation Convention, which excludes the possibility of someone being prosecuted or punished twice for the same act. The CJEU established the res iudicata principle in C-676/17. In Oana Madalina Calin, where it states:
"Nonetheless, it should be recalled that the res iudicata plays a significant role in both the European Union and national legal systems. In order to ensure the stability of both law and legal relations, as well as to ensure the proper functioning of the justice system, it is important that court decisions that became final after the exhaustion of available legal remedies or after the expiration of the deadlines open for their submission can no longer be made the subject of debate."
Based on the above, many people in the EU believe that it should not be possible to review the same case again, as this violates the above-mentioned principles.
Featured image: hirado.hu
