CJEU confirms Polish and Hungarian progressive turnover taxes do not violate EU law

By Doug Connolly, MNE Tax

On March 16, the Court of Justice of the European Union upheld the General Court’s judgments that two progressive turnover taxes – a Polish tax on the retail sector and a Hungarian tax on advertisement revenue – do not violate EU state aid law.

The decision has implications for the digital tax debate, as many of the digital taxes contemplated by EU member states are also progressive taxes on turnover (i.e., revenue as opposed to income). Some have argued that these taxes are discriminatory and violate EU law.

In the case of the Polish retail and Hungarian advertisement taxes, the European Commission had determined, in separate decisions issued in 2016 and 2017, that the taxes violated EU state aid law. However, the General Court annulled the Commissioner’s decisions in 2019. See, EU court addresses legality of progressive turnover taxes.

Following the European Commission’s appeal of the General Court’s decisions, the Court of Justice has now affirmed that the EU member states may establish these progressive taxation systems without violating EU law on state aid.

EU state aid law is intended to prevent member states from enacting discriminatory regimes that favor certain undertakings or the production of certain goods over others.

The Court of Justice previously issued a decision confirming the validity under EU law of a member state’s progressive turnover tax in a case involving a Hungarian telecommunications tax. See,  The Vodafone and Tesco Global decisions: no triumph for EU digital services tax supporters.