CJEU: The Hungarian and the Polish progressive taxes do not infringe EU law on State aid

  • 2021/04/10
  • kutatocsoport5

On 16 March 2021, the Court of Justice of the European Union (CJEU) ruled that the Polish tax on the retail sector and the Hungarian tax on advertisements do not infringe EU law on State aid. Both judgments dismiss the Commission’s appeals against the rulings of the General Court.

Background to the dispute

Poland introduced a progressive tax on the retail sector. That tax was based on the monthly turnover of any retailer involved in the sale of goods to consumers. That tax entailed two bands: a rate of 0.8% applied to turnover between 17 and 170 million Polish zlotys and a rate of 1.4% was charged for the part of the turnover exceeding that amount.

The European Commission initiated the formal investigation procedure in respect of that measure and considered that that progressive tax constituted State aid incompatible with the internal market.

The General Court held that the Commision was wrong to consider that the progressive tax at issue would lead to a selective advantage in favour of undertakings with low turnover linked to that activity.

Hungary had introduced a progressive tax on revenue linked to the publication and broadcasting of advertisements in that Member State. That tax, based on the net turnover of persons who broadcast or publish advertisements (print media, audiovisual media or billposters), operating in Hungary. That tax entailed initially six, later only two rates. The amended measure was accompanied by the option – for taxable persons whose profits before tax in 2013 were zero or negative – to deduct from their tax base 50% of the losses carried forward from previous years.

The European Commission initiated the formal investigation procedure in respect of that measure and considered that the tax measure adopted by Hungary, on account of both its progressive structure and the possibility of deducting the losses carried forward that it included, constituted State aid that was incompatible with the internal market.

The General Court annulled that decision, holding that the Commission had erred in finding that the measure at issue constituted selective advantages.

The Commision appealed the General Court’s judgments.

Findings of the Court

So the substantive issue in both cases is whether the use of progressive rates generates or does not generate different tax treatment.

First the Court noted that the classification of a national measure as ‘State aid’, within the meaning of Article 107(1) TFEU, requires all conditions to be fulfilled.

So far as concerns the condition relating to the selectivity of the advantage (which is the subject of the Commission’s appeal), the traditional method of analysis applied in the case law for a tax measure to be classified as ‘selective’ is the so-called derogation test. The Commission must begin by identifying the ‘normal’ tax system applicable in the Member State concerned, and thereafter demonstrate that the tax measure at issue is a derogation from that 'normal' system. The problem is that the measure differentiates between operators who are in a comparable factual and legal situation, without finding any justification with regard to the nature or scheme of the system in question.

The Court of Justice upholds the General Court’s analysis that the progressivity of the rates provided for by the tax measures respectively at issue formed an integral part of the reference system.

According to the settled case-law of the Court of Justice, given the current state of harmonisation of EU tax law, the Member States are free to establish the system of taxation which they deem most appropriate, so that the application of progressive taxation falls within the discretion of each Member State (provided that the characteristics constituting the measure at issue do not entail any manifestly discriminatory element).[1]

It follows that, outside the spheres in which EU tax law has been harmonised, the determination of the characteristics constituting each tax falls within the discretion of the Member States, in accordance with their fiscal autonomy, that discretion having, in any event, to be exercised in accordance with EU law. This includes, in particular, the choice of tax rate, which may be proportional or progressive, and also the determination of the basis of assessment and the taxable event.

In that regard, it must be stated that EU law on State aid does not preclude, in principle, Member States from deciding to opt for progressive tax rates intended to take account of the ability to pay of taxable persons.

In light of the above, the Court of Justice considers that the essential elements constituting the tax, which include progressive tax rates, constitute, in principle, the reference system or the ‘normal’ tax regime for the purposes of analysing the condition of selectivity.

In the Gibraltar case[2], the Court noted that it cannot be excluded that the characteristics constituting a certain tax regime may, in certain cases, form a manifestly discriminatory element. But in the present cases, the Commission had not established that the characteristics of the measures adopted by the Polish and Hungarian legislatures respectively had been designed in a manifestly discriminatory manner, with the aim of circumventing the requirements of EU law on State aid.

In those circumstances, the Commission had incorrectly relied on an incomplete and notional system in considering that the progressive scale of tax measures respectively at issue did not form part of the reference system in the light of which the selective nature of those measures had to be assessed.

So on those grounds, the Court of Justice rejected all the appeals brought by the Commission against the judgments under appeal in their entirety­­­­­­.


These cases are of great significance, since they seem indicative of a growing respect for the fiscal autonomy of the Member States, which, in parallel, entails the introduction of limits on the Commission’s powers.

Maybe these cases can help interpret the compatibility with EU State aid law of the domestic digital services taxes implemented by some Member States…


Author: Krisztina Széles, PhD student, University of Debrecen, Faculty of Law







[1] See judgments of 3 March 2020, Vodafone Magyarország, C-75/18, paragraph 49, and of 3 March 2020, Tesco-Global Áruházak, C-323/18, paragraph 69

[2] The judgment of 15 November 2011, Commission and Spain v Government of Gibraltar and United Kingdom, C‑106/09 P and C‑107/09 P

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