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Jul 04, 2016

EU finds Hungary in breach of aid rules

Two Hungarian fiscal measures based on progressive turnover rate structures were in breach of EU aid rules

The European Commission has found that two Hungarian fiscal measures based on progressive turnover rate structures were in breach of EU aid rules.

The Commission concluded that the progressive tax rates grant a selective advantage to companies with low turnover over their competitors.

Commissioner Margrethe Vestager, in charge of competition policy, stated that “Hungary is in the full right to finance the cost of its food inspection activities and to levy a tax on tobacco products to finance its health system. However, Hungary should make sure that all companies are treated alike so that the contributions are levied on non-discriminatory terms.”

Following the Commission's opening of an in-depth investigation in July 2015, neither of these two Hungarian fiscal measures with progressive rates structure was collected by Hungary and, as a result, no State aid was effectively granted. Consequently, there is no need for recovery in these cases.

The first of these two Hungarian fiscal measures with progressive rates structure concerns a food chain inspection fee and the second concerns a tax on turnover from the production and trade of tobacco products.

While a fee or a tax based on turnover does not in itself raise state aid issues, the Commission considers that the progressive rate structure provides a selective advantage to companies subject to the lower rates (those with lower turnover).

However, Hungary was not able to demonstrate that a progressive structure was justified either by the objectives pursued by the food chain inspection fee to cover the cost of sanitary inspections, or by the health-related objectives of the tax on the tobacco businesses.

The size of the retail operator controlled – or of the tobacco business – is already taken into account by linking the contribution to the turnover through a (single rate) proportional system.

The Commission does not question Hungary's right to decide on its taxation levels or the objective of different taxes and levies.

However, the tax system should respect EU law, including state aid rules, and should not unduly favor a particular type of company, for example companies with lower turnover.

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