May 11
Trajan Shipley
16th March 2021
Competition & State Aid Tax

Court of Justice: Polish and Hungarian progressive taxes on the turnover of undertakings do not infringe EU State aid law

The Court of Justice, sitting in Grand Chamber formation, has delivered its judgments in Commission v Poland (C-562/19 P) and in Commission v Hungary (C-596/19 P), finding that the Polish tax on the retail sector and the Hungarian advertisement tax, do not infringe EU State aid rules, which allow for progressive taxation measures.

Both cases are appeals against the General Court’s judgments in Poland v Commission (T-836/16 and T-624/17) and in Hungary v Commission (T-20/17) respectively. These judgments annulled the Commission’s decisions of 30 June 2017 (for Poland) and of 4 November 2016 (for Hungary), which had declared the Polish tax on the retail sector and the Hungarian advertisement tax as incompatible with the common market because they grant smaller undertakings, which are ‘taxed at too low a level’, an impermissible advantage and constitute State aid.

Hungary and Poland appealed the General Court’s judgments, presenting the Court of Justice with the question of whether direct business taxes which are calculated according to turnover rather than profit and are based on a progressive rate structure (thereby impacting more on large undertakings) are compatible with EU State aid rules. 

In its judgment delivered today, the Court followed Advocate General Kokott’s Opinion and held that insofar as the application of progressive taxation measures falls within the discretion of each Member State, such measures do not constitute selective advantages provided that the characteristics constituting the measure at issue do not entail any manifestly discriminatory element. The Court reasoned that EU State aid law does not preclude Member States from deciding to opt for progressive tax rates, intended to take account of taxpayers’ ability to pay, nor does it require them to reserve the application of progressive rates only to taxes based on profits, to the exclusion of those based on turnover. 

On the issue of selectivity (Article 107 TFEU), the Court reasoned that it is for the Commission to prove that the tax measure in question derogates from a previously identified reference system or ‘normal tax regime applicable’, insofar as it differentiates as between operators who, in the light of the objective pursued by that measure, are in a comparable factual and legal situation, without finding any justification with regard to the nature or scheme of the system in question. Thus, the Court held that in the present cases, the Commission had not been able to establish that the characteristics of the measures adopted by the Polish and Hungarian legislatures had been designed in a manifestly discriminatory manner, with the aim of circumventing the requirements of EU law on State aid.

The judgments will be available here (Poland) and here (Hungary). The Court’s press release can be found here.

An Op-Ed on the judgment by Saturnina Moreno will be published shortly.


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