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ECJ C-323/18 – Tesco-Global Áruházak vs HU – Does the new turnover-based tax for retail undertakings qualify as a turnover tax?

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

28. 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. Characterisation as a turnover tax must be rejected here, however, as I have already explained in my Opinion concerning the special tax for telecommunications services. (5)

29. It appears from case-law that there are four essential characteristics of VAT that are decisive in characterising a tax as a turnover tax: (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; and (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. (6)

30. In any case, the first, second and fourth conditions are not satisfied in this instance. First of all, the Hungarian special tax does not cover any transaction, but only the transactions of retail undertakings. It is not therefore a (general) turnover tax in accordance with the first criterion, but would be at best a special excise duty. Second, tax is not levied proportionally on each individual transaction according to its price (second criterion) but, according to Paragraphs 1 and 2 of the Law on the special tax, on the (net) total turnover from store retail trade.

31. Ultimately, 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 retail undertakings at issue — is not the person liable for payment, the tax must be designed to be passed on to the consumer specifically.

32. 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 retail 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. (7) It is not therefore a tax designed to be passed on.

33. Rather, the Hungarian special tax for retail undertakings is conceived such that those undertakings are intended to be taxed directly, as Hungary rightly points out. According to the preamble, the intention is therefore to tax the particular financial capacity of those undertakings and not the financial capacity of customers of the retail undertakings.

34. Accordingly, the special tax for retail undertakings 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, this does not affect its character as a direct income tax.

35. Consequently, it cannot be characterised as a turnover tax seeking to tax the consumer. Article 401 of the VAT Directive does not therefore prevent Hungary from introducing that tax in addition to VAT.