The European Commission has opened two separate in-depth investigations to further examine whether two recent Hungarian measures with steeply progressive rate structures are in line with EU state aid rules. The first measure concerns a food chain inspection fee and the second a tax on turnover from the production and trade of tobacco products. At this stage, the Commission has concerns in both cases that the progressivity of the rates based on turnover provides companies with a low turnover a selective advantage over their competitors, in breach of EU state aid rules...
The Commission has also issued injunctions, prohibiting Hungary from applying the progressive rates of the food chain inspection fee and the tobacco tax until the Commission has concluded its assessment. The opening of in-depth investigations gives interested third parties the opportunity to comment on the measures under assessment. It does not prejudge the outcome of the investigations.
Amendment of the food chain inspection fee
The Hungarian Food Chain Act requires food chain operators to pay a so-called "food chain inspection fee". According to a 2014 amendment, shops selling "fast-moving consumer goods" are subject to the fee at steeply progressive rates. "Fast-moving consumer goods" under the Act include a number of products that consumers use on a daily basis and are typically consumed, depleted or replaced within one year (for example, foodstuffs, cosmetics, drugstore or household cleaning products).
According to an amendment in 2014 stores with a low turnover are now either fully exempted or liable to pay a substantially lower food chain inspection fee (0.1% of their turnover) than stores with a higher turnover (up to 6% of their turnover). While a fee based on turnover does not in itself raise state aid issues, the Commission considers at this stage that the progressivity of the fee rates selectively favours companies with a low turnover and gives them an unfair competitive advantage over others.
So far, Hungary has provided no objective reasons that would justify such differentiated treatment. As the new rules entered into force on 1 January 2015 and the first payments are due at the end of July, the Commission has also decided to require Hungary to suspend application of the progressive rates until the Commission has completed its state aid assessment.
New tax on sales of tobacco products
Amendment of the food chain inspection fee
The Hungarian Food Chain Act requires food chain operators to pay a so-called "food chain inspection fee". According to a 2014 amendment, shops selling "fast-moving consumer goods" are subject to the fee at steeply progressive rates. "Fast-moving consumer goods" under the Act include a number of products that consumers use on a daily basis and are typically consumed, depleted or replaced within one year (for example, foodstuffs, cosmetics, drugstore or household cleaning products).
According to an amendment in 2014 stores with a low turnover are now either fully exempted or liable to pay a substantially lower food chain inspection fee (0.1% of their turnover) than stores with a higher turnover (up to 6% of their turnover). While a fee based on turnover does not in itself raise state aid issues, the Commission considers at this stage that the progressivity of the fee rates selectively favours companies with a low turnover and gives them an unfair competitive advantage over others.
So far, Hungary has provided no objective reasons that would justify such differentiated treatment. As the new rules entered into force on 1 January 2015 and the first payments are due at the end of July, the Commission has also decided to require Hungary to suspend application of the progressive rates until the Commission has completed its state aid assessment.
New tax on sales of tobacco products
In 2015 Hungary introduced a new tax on tobacco products, referred to as a 'health contribution'. The tax rates are steeply progressive: Companies with a low turnover are only liable to pay a tax of 0.2% of their turnover from the production and sale of tobacco products. On the other hand, companies with a higher turnover are subject to a rate of up to 4.5% of their turnover.The Commission looked into the issue because it received a complaint. The Commission welcomes Member State measures to reduce tobacco consumption. However, it has doubts that the effects of tobacco products on public health increase progressively with the turnover of companies selling them. Because of the progressive rates, companies with a low turnover pay substantially lower taxes than companies with a high turnover. So far, Hungary has provided no objective reasons that would justify a differentiated treatment between companies with different turnovers.
The legislation also allows companies to reduce their liability under this tax if they make certain investments in tangible assets. The Commission is concerned that this may grant a selective advantage to such companies, and Hungary has not at this stage demonstrated that the reductions are compatible with the Single Market.
