Abstract
In Commission v. Poland (C-562/19) and Commission v. Hungary (C-596/19) the Court of Justice of the European Union ruled that progressive tax systems based on turnover do not by definition provide selective advantages to undertakings with lower turnovers in violation of EU state aid law. The European Commission had declared a Polish tax on retailers and a Hungarian tax on advertisement incompatible with Article 107(1) TFEU because the progressive, turnover-based taxes favoured undertakings with smaller turnovers over those with larger turnovers. The General Court annulled both Commission decisions because such advantages were inherent to the content and objectives of the general tax system, which was for Poland and Hungary to define. The Court of Justice dismissed the appeals by the Commission, affirming that Member States are free, in line with their fiscal autonomy, to opt for a progressive and/or turnover-based tax system. While turnover-based corporate taxation may have market-distortive effects, the Court was right to dismiss the Commission's appeals. The principles of fiscal autonomy and legal certainty require an assessment of selectivity in light of Member States’ own definition of the content and objectives of their tax systems.
Highlights
Does the progressive taxation of companies based on their turnover provide a selective advantage to companies with a smaller turnover in violation of EU state aid law? This is the central question of two judgments of the Court of Justice of the European Union (CJEU) concerning a Polish tax on the retail goods sector and a Hungarian tax on advertisements.[1]
The General Court (GC), annulled both decisions on the ground that the Commission had erred in its application of Article 107(1) TFEU.[2]
The CJEU confirmed that the selectivity of a tax measure – which is central to the question of whether a measure constitutes state aid – must be assessed in light of the ‘normal’ tax system applicable in the Member State
Summary
Does the progressive taxation of companies based on their turnover provide a selective advantage to companies with a smaller turnover in violation of EU state aid law? This is the central question of two judgments of the Court of Justice of the European Union (CJEU) concerning a Polish tax on the retail goods sector and a Hungarian tax on advertisements.[1]. The CJEU confirmed that the selectivity of a tax measure – which is central to the question of whether a measure constitutes state aid – must be assessed in light of the ‘normal’ tax system applicable in the Member State It is principally for the Member States to decide on the characteristics of their ‘normal’ tax system in accordance with their fiscal autonomy. The Court concluded that only manifestly discriminatory tax systems exceed Member States’ discretion This leaves Member States with more leeway to emphasize, for instance, redistributive purposes in their tax systems, even if they result in de facto advantages to certain undertakings. We discuss the factual and legal background of both cases, the decisions of the Commission and the GC, the Opinions of Advocate General Kokott, and the judgments of the CJEU, after which we will offer some comments on the reasoning of the Court and its legal implications
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