The European Court of Justice (ECJ) has ruled that Hungary’s retail tax, which imposes a rate based on “consolidated turnover,” is disadvantageous to companies that are part of a group of “linked” businesses and discriminatory if in practice applies mostly to companies registered in another member state. The retail tax was described by the ECJ in its preliminary ruling as “steeply progressive.” at the rates of tax rise progressively from a rate of 0.1 percent between HUF500m (USD2m) and HUF30bn (USD131.5m); 0.4 percent between HUF30bn and HUF100bn (USD 438.5m); and 2.5 percent above HUF100bn. A company within a group is liable to pay a share of the total amount owed in proportion to its turnover.

The ECJ held that the tax has the effect of disadvantaging legal persons which are linked to other companies within a group when compared with legal persons which are not part of such a group, including independent franchisees. A company within a group, according to the ECJ, is taxed “on the basis of a fictitious turnover.”

The ECJ held that it was for the referring court to determine whether the higher tax rate in Hungary is imposed in the majority of cases on companies with a registered office in another Member State, but that if so, the tax would be “indirect discrimination” and in this case it would be precluded by EU law.