The Court of Justice of the European Union says that a sector-specific tax is legal

Today's judgments clearly state that large companies will not be able to make any objections in the future to having to pay proportionally more taxes than small businesses with significantly lower economic potential.

In its judgments today, the European Court of Justice upheld the principle of fair burden-sharing by the Hungarian government and also ruled in the case of both Vodafone and Tesco that the revenue-based, progressive, sector-specific special tax on retail and telecommunications activities between 2010 and 2012 is not contrary to EU law.

The background to the case is that Vodafone and Tesco filed lawsuits against the Hungarian State seeking to abolish their sector-specific tax liability. The Hungarian court then initiated a so-called preliminary ruling procedure before the Court of Justice of the European Union, requesting an examination of the compatibility of the sector-specific tax, which has not existed since 2013, with EU rules pertaining to state aid law and freedom of establishment. The key difference between the standpoints of the government and the plaintiffs, both large companies, is that in the government's view, companies with a higher capacity and a dominant market position should have a greater share of the tax burden.

For their part, the multinationals asked the Commission for help, as they consider their capacity and competitive position to be no different from that of small and medium sized enterprises operating in the market and thus believe that their tax burden should not be higher than the general one.

According to the Court, the special tax does not discriminate between taxable entities as the government is treating different situations differently based on facts. It is therefore in line with the principle of freedom of establishment and does not disadvantage firms owned by foreign entities. Furthermore, the Court did not find that the tax infringes on the state aid rules of the Union. In addition, the European Court of Justice also stated that the sector-specific tax is not in conflict with the VAT Directive, as it is in no way similar to the common Value-Added Tax.