EC Questions Hungary's Property Tax

by Ulrika Lomas, Tax-News.com, Brussels

16 September 2009

The European Commission has referred Hungary to the European Court of Justice on the grounds of unfavorable tax treatment of residential property transactions that involve property in another Member State.

In its application, the Commission notes that, under Hungarian tax law, in order to establish the taxable amount at the time of acquisition of residential property situated in Hungary, only previous residential property situated in Hungary can be taken into account; therefore, any sale of property in another Member State, the proceeds of which are used to purchase property in Hungary, is excluded.

The Commission is of the opinion that this rule is contrary to the principles of freedom of movement for persons and freedom of establishment laid down by provisions in the EEA Agreement.

The purpose of the EEA Agreement provisions is to facilitate the exercise of professional activity of any type anywhere in the Community for citizens of the Member States and, at the same time, prohibit any measure as a result of which citizens of any Member State of the Community who, in exercise of their right to freedom of movement, wish to carry out an economic activity in the territory of another Member State are placed in a less favorable position. In its application, the Commission notes that it is settled case-law that provisions which prevent or discourage a national of a Member State from leaving his country of origin to exercise his right to freedom of movement constitute obstacles to that freedom, even where they apply regardless of the nationality of the persons concerned.

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