7th May 2021

Poland and Hungary win at EU court on taxes

  • Hungary's justice minister Judit Varga (l) and justice commissioner Dider Reynders (r) at a previous pre-Covid council meeting (Photo: Council of the European Union)

Hungary and Poland won separate tax disputes with the EU Commission after the bloc's top court ruled on Tuesday (16 March) in favour of the two member states - which are caught up in ongoing rule-of-law disputes with the EU.

The European Court of Justice (ECJ) rejected the commission's appeal of a lower court ruling that upheld Hungary's 2014 advertising tax.

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The tax initially imposed a rate of 50 percent of sales on the biggest networks. Critics saw this as an attack on RTL Klub, the country's most-watched commercial broadcaster, and as a way of undermining the free press in Hungary.

The commission later said the tax was in breach of EU rules, but Hungary challenged that assessment and won the case in the court in 2019, which has now been upheld.

Hungary eventually lowered the tax rate and said last year it would suspend it in 2022.

EU judges also said on Tuesday that Poland's lower tax rates for smaller retailers should not be seen as illegal state aid.

The commission had previously argued that the Polish retail tax unfairly provided companies with lower sales an advantage over bigger rivals.

The Polish tax policy was one of the main election pledges the Law and Justice (PiS) party when it came into power in 2015, as a way of funding popular social spending.

"Once again, it has been proven that Hungary has chosen a good solution regarding the taxation of capital-intensive, international companies," Hungarian justice minister Judit Varga said on Facebook, commenting on the decision.

Poland and Hungary are under EU scrutiny for backsliding on democratic values and breaching EU rules.

'Industrial scale' non-compliance

Meanwhile, MEPs in the European Parliament called on justice commissioner Dider Reynders to launch the new rule-of-law conditionality tool against Poland, whereby EU funds can be suspended in cases where the respect of rule of law has been breached.

MEPs are concerned that under a judicial overhaul in Poland, the government is putting judges and prosecutors under political influence.

Slovak liberal MEP Michal Simecka said in the debate that "non-compliance with EU law reached an industrial scale in Poland".

The commission had argued it first wanted to see the outcome of a court case challenging the tool, launched by Poland and Hungary.

On Tuesday, Reynders said that the commission is looking at possible cases even before the court ruling, but will not act before it can take into account the ECJ's decision.

Reynders argued that "the protection of the rule of law also [means] to apply correctly the treaty", if the commission is to expect member states to do the same.

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