EC Signals Review of Hungarian Taxation of Foreign Retail Companies

The European Commission plans to closely examine the complaint regarding Hungarian taxation of retail companies and take ‘appropriate’ procedural steps, following objections from the Austrian government and the retail company Spar, according to letters seen by Reuters.

Taxes on retail chains in Hungary have been increasing since the government introduced a special tax in 2020, and the tax rate now stands at up to 4.5 percent of revenue, noted Spar Austria CEO Hans Reisch in letters to the Commission dated March 4, 11, and 20.

The tax discriminates against foreign traders in Hungary and therefore violates EU laws, claimed the head of the Austrian company in letters to European Commissioner for Competition Margrethe Vestager, Internal Market Commissioner Thierry Breton, and Economic Commissioner Paolo Gentiloni.

– Foreign-owned retail companies, including Spar Hungary (…) are classified in the highest tax bracket of the special tax – wrote Reich. ‘Hungarian competition in franchise chains continuously enjoys the advantage of lower tax rates (from 0 to 1 percent),’ the letter states.

In such a tax environment, traders operate at a loss as profit margins in the retail sector are below 4.5 percent, added Reisch.

The Hungarian government did not immediately respond to Reuters’ request for comment on the letters.

At the end of January, Austrian ministers of economy and foreign affairs highlighted in a letter to European Commission President Ursula von der Leyen that Hungarian tax policy disproportionately affects the profitability of foreign retail traders.

– The Republic of Hungary follows an approach that contradicts the goal of the internal market, with serious negative consequences for food traders from other EU member states – the ministers wrote in a letter seen by Reuters.

In response to the inquiry about Austria’s complaint, the Commission stated that ‘the Commission’s services have received a complaint regarding the tax paid by retail companies in Hungary and will analyze it and ensure that appropriate steps are taken, in accordance with the procedure.’