For months, the Spar trading group in Brussels has been actively pushing for Hungary to be restrained by the introduction of its special taxes. The 2022 government under Prime Minister Viktor Orbán introduced taxes for banks, insurance companies, retail chains and energy companies after Russia’s attack on Ukraine. The income at the expense of the supposed winners of the crisis is intended to relieve budgets and upgrade the armed forces. Spar’s Hungarian subsidiary has been making losses ever since – in 2023, according to the company, the deficit was almost 48 million euros. As of this year, 4.5 percent of annual sales are due.
Because the taxes mainly affect foreign companies, Spar has called on the EU Commission to initiate infringement proceedings because the measure violates the rules of the EU internal market. At the end of June, Spar board member Hans Reisch went to Competition Commissioner Margrethe Vestager in Brussels. There was political support from the Austrian federal government and from EU representatives.
Commission calls for abolition
The efforts may now have paid off. The Commission announced on Thursday that it had opened infringement proceedings against Hungary for failing to bring its retail tax system in line with freedom of establishment. “Due to the current design of the retail tax system, foreign-controlled retail companies operating in Hungary as integrated companies or affiliated companies are subject to high and highly progressive tax rates on their turnover,” the Commission’s communication says. “Domestic retailers of comparable size operating on the Hungarian market under their respective brands and logos through franchise systems are not subject to the same highest rates as their turnover is not consolidated for tax purposes. In particular, the system prevents foreign-controlled retail companies from restructuring their operations in this way like comparable domestic retail companies.”
Therefore, the existing tax system represents a restriction on freedom of establishment. Hungary has continuously extended this measure without giving a clear timetable for expiry. On the contrary: the tax rates have even been increased. The Commission sent a letter of formal notice to Hungary. The government now has two months to respond “and address the issues raised by the Commission”.
Further complaint pending
Spar welcomed the commission’s decision on Thursday. “In order to fully protect the principles of the EU internal market, it is also important that decisions are made by the EU Commission in connection with the state aid complaint lodged. In this way, the European Commission can ensure that all companies, regardless of their origin, receive fair treatment and have equal opportunities to be successful in Hungary,” Spar said in a statement.
On a collision course with Orbán
The complaint to the Commission was not without consequences. Immediately afterwards, the company reported that it had been hit by a wave of controls from the Hungarian authorities. However, the announcement that Spar would sue for defamation turned out to be an empty threat. The dispute over special taxes, which also affects other large German and Austrian companies such as the Vienna Insurance Group and Erste Bank, is not the only dispute between Spar and Hungary. The company also defends itself against government-imposed price controls for certain foods. In September, the European Court of Justice ruled that Hungary’s price and quantity controls violated EU law. A succession of stages: After the ECJ decision, the ball is now back in the Hungarian courts’ court.
16,000 employees in 600 branches
Spar has been active in Hungary since 1991. The company operates around 600 branches there and employs around 16,000 people. Despite the political and economic conditions, board member Reisch confirmed in March that there are no plans to sell the subsidiary: “We have assets of around 180 million euros there, so it’s not that easy to withdraw from there and possibly do without things. We invested a total of two billion euros there.”
