Weekly Tax News – 24 June 2019

Court of Justice of the European Union on Hungarian turnover-based tax

On 13 June, the Court of Justice of the European Union (CJEU) released a provisional text of Advocate General Juliane Kokott’s opinion on the Hungarian telecommunications sector tax. The case refers to the Hungarian telecommunications tax, that is a turnover-based tax similar to the one that is being implemented by Member States on the digital economy, the so-called digital services tax. The Hungarian national court asked to the CJEU if the telecommunication tax poses questions of: (i) freedom of establishment, since the burden falls mainly on foreign-owned companies; (ii) state aid, for the imposition of a progressive tax on turnover, whose higher band falls mainly on foreign-owned companies and (iii) infringement of Art. 401 of the VAT Directive, that prevents Member States from introducing turnover taxes. The Advocate General provided negative answers to the three questions. In particular, she argues that the Hungarian telecommunication tax is a special (direct) corporate tax for certain undertakings, therefore Art. 401 of the VAT Directive does not prevent Hungary from introducing it in addition to VAT. Referring freedom of establishment, Advocate General Kokott argues that the turnover criterion does not intrinsically disadvantage the cross-border situation. With regard to the state aid question, the Advocate General answers that “different taxation arising from a progressive rate does not constitute a selective advantage for lower-turnover undertakings (and does not thus constitute State aid)”.

Progress in the discussions about a Financial Transaction Tax (FTT)

The ten countries that have decided to enhance their cooperation regarding a financial transaction tax have made progress on reaching an agreement. In a joint document from France and Germany a “balanced allocation system” is laid out that allows for a minimum revenue of 20 million € for countries that are expected to make no or very little revenue from the FTT. The re-distribution and payments are based on the participating country’s gross national income. In a note that was submitted to the ECOFIN-Council on 14 June 2019, Germany proposed to follow the French model and tax value of transactions of companies based in the EU at no less than 0,2%. 

No agreement on EU top jobs

The European Council on 20 June failed to decide on personnel for the four top positions in the European Institutions. Still vacant are the presidencies of the European Council, the European Commission, The European Parliament and the European Central Bank. European leaders are determined to come up with names before the first week of July when the Parliament will hold its constituent session. Discussions are very intense with all options still on the table. The S&D and EPP groups hold on to their Spitzenkandidaten Frans Timmermans and Manfred Weber for the presidency of the Commission but the Danish liberal politician, Margrethe Vestager still stands a chance, even though she only announced her candidature after the European elections.