• Service: Tax, Global Compliance Management Services, International Tax
  • Type: Regulatory update
  • Date: 2/7/2014

Hungary - CJEU considers whether taxation of groups is discriminatory 

February 7: The Court of Justice of the European Union (CJEU) this week considered whether Hungarian tax law—that serves to disadvantage undertakings linked, within a taxpayer group, to companies established in another EU Member State—constitutes an indirect discrimination on the basis of the location of the registered offices of the companies. Hervis Sport-és Divatkereskedelmi Kft. v. Nemzeti Adó-és Vámhivatal Közép-dunántúli Regionális Adó Foigazgatósága, C-385/12 (5 February 2014)


As explained in a CJEU release [PDF 110 KB], Hungarian law on the taxation of the turnover of store retail trade provides that taxable legal persons that constitute a taxpayer group (including “linked undertakings”) must aggregate their turnover before applying what is described as a steeply progressive rate and then dividing the resulting amount of tax among the members of the group in proportion to their actual turnover.

The taxpayer in this case operated sports shops in Hungary and was part of a corporate group whose parent company was established in another EU Member State.

Under Hungarian tax law, the taxpayer is liable to pay a share of the “special tax” payable by all the undertakings belonging to the group. The application of that rule, however, had the effect of subjecting the taxpayer to an average rate of tax considerably greater than the tax rate that would have applied if the taxpayer were solely taxable on the turnover of its own stores.

The taxpayer filed an application with the Hungarian tax authorities, requesting to be exempt from the special tax rule. This application was rejected by the tax authorities. The taxpayer then initiated a judicial action in Hungary. The Hungarian court referred the case to the CJEU for resolution as to whether the Hungarian tax law was compatible with the principles of freedom of establishment and equal treatment.

CJEU conclusions

The CJEU concluded that:

  • The Hungarian law on the special tax differentiates between taxable persons on the basis of whether they belong to a group.
  • While the law does not directly discriminate (because the special tax is levied in identical circumstances for all the companies engaged in store retail trade in Hungary), the criterion of differentiation has the effect of disadvantaging the “linked undertakings” compared with undertakings that are not part of the corporate group.

The CJEU further concluded that the application of that steeply progressive scale to a consolidated tax base consisting of turnover could disadvantage undertakings linked, within a group, to companies established in another EU Member State.

The CJEU thus requested that the Hungarian court establish whether there was such a disadvantage and, if so, to find whether Hungarian law constitutes an indirect discrimination on the basis of locations of the registered offices of the companies because such discrimination would not be justified by overriding reasons in the public interest.

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