On 3 March 2020 the European Court of Justice (ECJ) issued a decision in the case of Tesco-Global Áruházak Zrt. The company, a part of the Tesco plc group, was a public limited company set up under Hungarian law operating in the wholesale and retail trade.

The company brought an action initially before the Budapest Administrative and Labour Court arguing against an assessment to the special tax for retail trade on the grounds that the tax was not in line with EU law. The special tax on the retail trade was a turnover tax with progressive rates.

The issues were referred to the European Court of Justice (ECJ). An important issue was whether the special tax for retail trade infringed the EU principle of freedom of establishment under articles 49 and 54 of the Treaty on the Functioning of the EU (TFEU); and whether the tax was in line with the provisions prohibiting State Aid under TFEU articles 107 and 108.

Advocate General’s opinion.

The Advocate General’s opinion of 4 July 2019 was that the special tax on the retail trade treats different undertakings unequally by charging higher rates on enterprises with higher turnover. The AG noted that higher-turnover businesses paid higher tax in both absolute and in relative terms, and this constituted unequal treatment. However the turnover criterion did not intrinsically disadvantage the cross-border situation, so there was no indirect restriction of the fundamental freedoms of the EU arising from the progressive turnover-based income tax for retailers.

As the special tax for retail trade was applicable without distinction to all businesses in the sector there was no selective advantage for businesses with lower turnovers and State Aid rules did not apply.

ECJ decision

The ECJ ruled on 3 March 2020 that Articles 49 and 54 TFEU did not preclude tax legislation in a Member State introducing a progressive tax on turnover, the burden of which fell primarily on enterprises controlled directly or indirectly by nationals of other EU Member States or by companies with a registered office in another EU Member State, as a result of the fact that those enterprises recorded the highest turnover in the relevant market.