French Supermarket Chain Says Hungary’s Local Business Tax Is Illegal Under EU Law

by Ulrika Lomas, Tax-News.com, Brussels

20 July 2005

A French supermarket chain is calling on the Hungarian government to refund more than EUR2 million that it paid in a local business tax, which, the firm argues, is illegal under European Union's tax rules.

Auchan, which currently has nine supermarkets in Hungary, believes that the local tax, which is levied at rates of up to 2%, is incompatible with European taxation rules because it is based upon revenue rather than profits and is therefore too similar to VAT.

"We told the Budapest municipality that if the EU deems the local business tax is illegal, we will ask for a refund," Auchan spokeswoman Katalin Gillemot remarked, according to AFX News.

Last month, the Hungarian government proposed a five-year tax cut plan, which will cut the overall tax burden by a total of about 1 trillion Hungarian forints (EUR4 billion) between 2006 and 2010. These cuts will entail a reduction in the top rate of value-added tax to 20% from 25% and the top rate of income tax to 36% from 38%. However, it is expected that the local business tax will not be eliminated until 2008.

In April, a study by a government-appointed tax committee calculated that Hungary should be able to cut taxes by around 100 billion forints ($520 million) per year through cuts in business and personal taxes and VAT. One of the many recommendations of the committee was the abolition of the the local business tax, along with simplifying personal income tax, raising the top rate of tax and eliminating many breaks for the highest earners; and unifying VAT at a single rate of 20%.

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