The EU Court of Justice’s advocate general dismissed on Thursday (15 October) the European Commission’s appeal about Poland and Hungary’s tax regimes and recommended upholding the verdict in favour of the two eastern member states.
The Commission concluded in November 2016 and June 2017 that the Polish retail tax and the Hungarian advertisement tax were incompatible with the internal market, since they grant an unfair advantage to smaller companies, which are ‘taxed at too low a level’, and therefore constitute state aid.
The General Court annulled the Commission’s decisions last year since there was no evidence of any selective advantage in either tax regime.
Following the Commission’s appeal before the Court, advocate general Juliane Kokott proposed that the Court of Justice should dismiss the Commission’s complaints and uphold the General Court’s ruling.
The Court follows the advocate general’s opinion in a majority of cases.
Under the Polish retail tax, merchants exceeding a monthly turnover of PLN 17 million (around €4 million) have to pay a 0.8% rate on revenues between PLN 17 million and PLN 170 million (€37 million), and a 1.4% rate about that portion.
The Hungarian advertisement tax made broadcasters and publishers pay a progressive tax rate on the annual net turnover generated by advertisements. The initial six rates became two: no tax below HUF 100 million (around €312,000) and 5.3% for the taxable amount above that.
The top advocate said that a tax law can constitute state aid only if its design was “manifestly inconsistent”, which has not been proven by the Commission in these cases.
Otherwise, it is up to the national parliaments to decide the tax regime they want to impose.
Income taxation based on turnover has its advantages and disadvantages. “However, these must be weighed up and accounted for, not by an authority or a court but by a democratically mandated legislature,” the opinion said.
Kokott added that progressive rates are “perfectly common means” to achieve taxation according to financial capacity.
“High turnover does not necessarily lead to high profit, but high turnover is a prerequisite for high profit. The differentiation is therefore not inconsistent,” the opinion added.
The Court’s opinion represented a new blow for the Commission’s executive vice-president for competition, Margrethe Vestager, on the tax front.
EU judges already said that her services had failed to prove that Ireland offered unfair tax advantage to Apple, and therefore the company did not have to pay €13 billion in past taxes. The Commission appealed the EU judges’ decision.
The EU General Court also rejected last year the EU executive’s conclusions about Starbucks’ tax advantages in the Netherlands.
The Court, however, did confirm that Fiat had benefited from an unlawful tax ruling in Luxembourg.
[Edited by Zoran Radosavljevic]