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Hungary appears to be back on a collision course with Brussels over a series of newly proposed measures to tax and otherwise regulate supermarket chains—including U.K. supermarket giant Tesco PLC.
The Hungarian government wouldn’t comment on the proposed measures, which, according to local media reports, include an environmental levy on supermarket parking lots, a revenue-based cap on advertising spending, revenue-based minimum staff requirements and a 100% wage supplement for those working on Sundays.
The majority of supermarket chains in Hungary are foreign-owned, with Tesco topping the market in terms of revenue.
“The consultation process with sector representatives is currently under way, and no details are officially released yet,” a spokesperson for the Ministry for National Economy told Bloomberg BNA in a March 16 email. “At this stage, we cannot give any more information.”
A government comment carried by news portal Portfolio.hu suggests that opposition from the European Commission is anticipated.
“We are certain that the international chains will turn to Brussels over any decision the government will make,” the comment said. “At the same time, the government is working to safeguard the interests of domestic consumers, rather than to boost the profit of international chains. Therefore, we will combat any offensive coming from Brussels.”
Hungary has been butting heads with Brussels since 2010 when the Viktor Orban-led government adopted a policy of sector-based taxation, Zoltan Titusz Fekete, tax manager, tax law, at Budapest-based RSM Hungary Tax and Financial Advisory Services, told Bloomberg BNA in a March 16 telephone interview.
Telecommunications, energy, retail and, most recently, advertising have been singled out for special levies, in particular, he added.
The levies are typically designed to help smaller, Hungarian-owned businesses, and this has made them the target of European Union investigations on more than one occasion, according to Fekete.
For example, in 2014, the Court of Justice of the European Union overturned a part of Hungary’s tax legislation that forced taxable persons within a retail group to aggregate their turnover before applying “a steeply progressive rate and dividing the resulting amount of tax among them in proportion to their actual turnover,” according to a Feb. 5, 2014, press release announcing the court’s decision.
In late 2015, Hungary was forced to abolish a food chain inspection fee and a tax on turnover from the production and trade of tobacco products after the European Commission found both measures to be in breach of European Union State Aid rules.
And last November, the European Commission concluded that an advertising tax introduced under Hungary’s 2014 Advertising Tax Act breached EU State Aid rules by subjecting companies with higher advertising turnover to significantly higher, progressive tax rates.
The European Commission wouldn’t comment on the newly proposed measures to tax and regulate supermarket chains.
But the National Trade Association, or OKSZ, said in a March 16 statement that it feared that the measures would not only hit supermarket chains but the Hungarian retail sector as a whole.
Among its chief objections, the association said a special levy on parking lots, which reportedly anticipates annual budget revenue of 20 billion forint ($69.6 million) “constituted “a significant burden” for retailers.
It also objected, among others, to minimum staff requirements based on revenue of retail outlets and to the government’s reasoning that extra staff was needed to help consumers make better-informed purchasing choices.
“Informing consumers about a particular product is the manufacturer’s obligation and responsibility everywhere in the world,” the press statement said.
Fekete advised companies to sit tight for the time being as early drafts of government regulatory measures have a way of significantly changing through the consultative process.
“It’s serious, but I think there is not a strict final proposal for what will happen,” he said, adding that the proposed measures could be merely a trial balloon. “Right now we don’t know the details. It seems to be a testing period when the government explores the first reactions.”
Gergely Sera, manager, tax and law services, EY in Hungary, agreed. “It’s in a very early stage right now,” he told Bloomberg BNA in a March 17 telephone interview.
“The clients I talk to are worried, but they are lacking in information. I think, at this stage, they should wait for the text of the law because otherwise they might end up fighting against shadows, which do not really exist.”
Given the lack of detail on the proposed measures, particularly the structure of the special levy on parking lots, the possibility of the European Commission intervening is hard to judge, Sera added.
“When the European Commission intervened, it was with a steeply progressive tax rate,” he said. “If it is very steeply progressive in this case,” companies “could expect the European Commission to intervene again. But if the Hungarian government learnt that lesson and if they designed the tax as a flat tax, single rate tax, then there is maybe no room for the Commission to intervene.”
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A press release on the Court of Justice of the European Union Feb. 5, 2014, decision is at: http://curia.europa.eu/jcms/upload/docs/application/pdf/2014-02/cp140014en.pdf.
A press release on the European Commission final decision regarding food inspection fees and tax on tobacco sales is at: http://europa.eu/rapid/press-release_IP-16-2404_en.htm.
A press release on the European Commission Nov. 4, 2016, finding on advertisement tax is at: http://europa.eu/rapid/press-release_IP-16-3606_en.htm.
The March 16 statement by the National Trade Association (OKSZ) is available, in Hungarian, at: http://oksz.hu/cikkek/sajtokozlemenyek/a-kereskedelem-ujabb-szabalyozasi-javaslatai-sertik-a-vasarlok-erdekeit-is.
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