About the HERVIS ruling

In the last few days contradictory opinions have been expressed about the 5 February ruling of the European Court of Justice (C385/12) on whether the special tax imposed on retail trade in Hungary is discriminative or not.

The special tax in question was imposed between 2010 and 2012 and it was based on sales revenue. Hervis Sports and Fashion Kft., a member of the Spar Group opined that this practice was especially disadvantageous for Hungarian enterprises that belonged to an international group: because of the progressive tax calculation they had to pay much more than non-group members. Hervis Kft. claimed that this practice violated many European Union freedoms. The European Court of Justice came to the decision that the special tax didn’t violate the freedom of settlement, service providing and capital movement, but the court also ruled that it was discriminatory. Now it is the Hungarian court’s turn to decide – following the guidance of the European Court of Justice – whether international group member companies did suffer discrimination or not. According to lawyer Pál Jalsovszky, if the Hungarian court finds that foreign-owned company groups weren’t over-represented among those that had to pay the highest taxes, it will reject Hervis’ claim. However, if the court rules that they were over-represented and the special tax system violated EU law, two things may happen: the court states that the discriminative tax was fully against the law and Hervis will get the full sum paid as special tax back; or it says that only adding up group member firms’ tax bases was against EU law, and Hervis will only be given back the extra sum it had to pay because of the tax’s progressivity (and not the full sum of the special tax it had to pay).