Following the opinion of advocate-general Kokott, the ECJ is scheduled to provide its judgement about this case on Tuesday 03 March 2020.
Infringement of Article 401 of the VAT Directive
25. Article 401 of the VAT Directive makes clear that Member States are not prevented from introducing new taxes if they cannot be characterised as turnover taxes. The referring court wishes to know in this connection whether the turnover-based special tax for telecommunications undertakings is to be regarded as a tax which can be characterised as a turnover tax. In that case, Hungary would be prevented from introducing it under Article 401 of the VAT Directive.
26. The Court has held in settled case-law that in order to interpret Article 401 of the VAT Directive it must be viewed against its legislative background. (6)
27. According to the preamble to First Council Directive 67/227/EEC of 11 April 1967 on the harmonisation of legislation of Member States concerning turnover taxes, (7) harmonisation of legislation concerning turnover taxes should make it possible to establish a common market within which there is healthy competition and whose characteristics are similar to those of a domestic market, by eliminating tax differences liable to distort competition and hinder trade. (8) By the VAT Directive, (9) such a common system of value added tax was introduced.
28. The principle of the common system of VAT involves the application to goods and services, up to and including the retail trade stage, of a general tax on consumption exactly proportional to the price of the goods and services, whatever the number of transactions which take place in the production and distribution process before the stage at which tax is charged. (10) As the Court states, that tax is to be finally borne by the ultimate consumer alone. (11)
29. In order to attain the objective of ensuring equal conditions of taxation for the same transaction, no matter in which Member State it is carried out, the common system of VAT was intended to replace the turnover taxes in force in the various Member States. For these same reasons, Article 401 of the VAT Directive allows the maintenance or introduction of taxes, duties or charges on the supply of goods or services and imports by a Member State only if they cannot be characterised as turnover taxes.
30. The Court has ruled in this regard that taxes must in any event be regarded as being imposed on the movement of goods and services in a way comparable to VAT if they exhibit the essential characteristics of VAT, even if they are not identical to it in every way. (12)
31. It appears from case-law that there are four essential characteristics of VAT: (1) it applies generally to transactions relating to goods or services; (2) it is proportional to the price charged by the taxable person in return for the goods and services which he has supplied; (3) it is charged at each stage of the production and distribution process, including that of retail sale, irrespective of the number of transactions which have previously taken place; (4) the amounts paid during the preceding stages of the process are deducted from the tax payable by a taxable person, with the result that the tax applies, at any given stage, only to the value added at that stage and the final burden of the tax rests ultimately on the consumer. (13)
32. First of all, the Hungarian special tax does not cover any transaction, but only specific transactions of telecommunications undertakings. It is not therefore a (general) turnover tax in accordance with the first criterion, but would be at best a special excise duty, which the Member States would not be permitted at present, however, only under the conditions laid down in Article 1(2) and (3) of Directive 2008/118/EC. (14)
33. Second, it is not designed to be passed on to the consumer (fourth criterion). This cannot be taken to be the case simply because a tax has been reflected arithmetically in the price of the goods or services. That is more or less the case with any tax charge on an undertaking. Rather, if the consumer — as with the Hungarian special tax for telecommunications undertakings at issue — is not the person liable for payment, the tax must be designed to be passed on to the consumer specifically.
34. This would require the amount of tax to be established at the time when the transaction is carried out (at the time of the supply to the consumer), as is the case with VAT. However, as that amount cannot be calculated until the end of the year and depends on the volume of annual turnover, the supplying telecommunications undertaking does not yet know any tax charge which may have to be passed on at the time when the supply is made or at least its precise amount. (15) For example, if the lower threshold is not reached at the year end, there is no tax at all to be passed on to the consumer. It is not therefore a tax designed to be passed on.
35. Rather, the Hungarian special tax for telecommunications undertakings is conceived such that those undertakings are intended to be taxed directly, as Hungary rightly points out. According to the preamble, their capacity to bear public burdens is purported to surpass the general obligation to pay tax (presumably meaning the general capacity to pay tax). The intention is therefore to tax the particular financial capacity of those undertakings and not the financial capacity of recipients of telecommunications services. The Hungarian special tax is similar in this regard to a special (direct) corporate tax for certain undertakings, in this case telecommunications undertakings.
36. Tax is also not levied on each individual transaction according to its price but, according to Paragraphs 1 and 2 of the Law on the special tax, on the (net) total turnover from the supply of electronic communication services in the tax year from the threshold of HUF 500 million at an initial rate of 4.5% and from HUF 5 000 million at 6.5%. In this way too, the special corporate tax is similar in character to a special direct income tax. Unlike ‘normal’ direct income taxes, however, the taxable amount is not the profit generated — as the difference between two operating assets within a certain period — but the turnover generated within a certain period. Nevertheless, contrary to the view evidently taken by the Commission at the hearing, this does not affect its character as a direct tax.
37. Consequently, the Hungarian special tax constitutes a turnover-based special (direct) income tax which is intended to skim off the particular financial capacity of telecommunications undertakings. Therefore, as the Commission rightly states, it cannot be characterised as a turnover tax seeking to tax the consumer. Accordingly, Article 401 of the VAT Directive does not prevent Hungary from introducing that tax in addition to VAT.