European Court upholds Hungarian tax on telecom operators

The European Union’s highest court concluded on Tuesday that a Hungarian tax on telephone companies does not violate EU law.

LUXEMBOURG (CN) – The European Union’s highest court concluded on Tuesday that a Hungarian tax on telephone companies does not violate EU law.

“The strongly progressive rates of the special tax do not, in themselves, create discrimination, depending on where the companies have their registered office,” wrote the European Court of Justice in its judgment.

The fact that the foreign companies paid the highest Hungarian tax rates only reflected the economic realities of the market, the Luxembourg court found.

Following the financial crisis of 2008, Hungary, a country in central Europe, introduced a series of taxes to balance the government budget. One of them was a progressive tax on telecommunications operators, which levied a tax ranging from 0.1% on companies with annual profits between 500 million Hungarian forints (1.6 billion dollars). and 30 billion forints ($99 billion) at 2.5% on those with more than 100 billion forints ($330 billion). For telecommunications companies whose annual profits are less than 500 million forints, the tax rate is zero.

In 2012, British supermarket giant Tesco received a tax bill of 1.4 billion forints ($4.5 million) on revenues made between 2010 and 2013.

Local branches of Tesco and telecommunications giant Vodafone, which had also been taxed under the new laws, filed suit against the Hungarian government in a Hungarian court, arguing that the tax violated EU competition rules.

Tesco argued that, with one exception, the companies taxed at the highest rate were all foreign-owned, while all zero-tax companies were owned by Hungarians. Under EU law, countries in the political and economic union cannot discriminate on the basis of nationality.

However, the European Court of Justice sided with Hungary on Tuesday and concluded that there was no discrimination in the tax system because the rates are not determined according to the place of establishment of the person. ‘company.

“The basic 0% tax bracket does not exclusively affect taxable persons belonging to Hungarian natural or legal persons, since, as in any progressive tax system, any company operating on the relevant market benefits from the reduction for a proportion of its turnover that does not exceed the maximum amount of this tranche,” the court wrote.

Vodafone and Tesco declined to comment on the ongoing litigation. Both cases will now return to the Administrative and Labor Court in Budapest, which referred the case to the EU’s highest court, for a final decision.

In a separate ruling on Tuesday in a case brought by Google, the Court of Justice called Hungary’s system of taxing advertising sales “disproportionate and therefore unjustified” and found it incompatible with EU law. Google’s European headquarters are in Ireland.

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Laura T. Thrasher