Today, the European Commission decided to refer Hungary to the Court of Justice of the European Union for failing to bring its retail tax regime in line with the freedom of establishment guaranteed by Articles 49 and 54 of the Treaty on the Functioning of the European Union.
Due to the current design of the retail tax regime, foreign controlled retail companies operating in Hungary as integrated companies or linked undertakings, are subject to high and steeply progressive tax rates on their turnover. However, domestic retailers operating on the Hungarian market under their respective brands and logos via franchise systems are not subject to the same highest rates because their turnover is not consolidated for taxation purposes. Notably, the regime prevents the foreign controlled retail companies from restructuring their business operations like those domestic retail companies. Therefore, the retail tax regime constitutes a restriction to the freedom of establishment.
The Commission sent a letter of formal notice to Hungary in October 2024, followed by a reasoned opinion in June 2025. As Hungary denies the infringement and has failed to take any steps to abolish this retail tax regime, the Commission is referring it to the Court of Justice of the European Union.
Background
The retail tax negatively affects foreign retailers, as it is based on the volume of net retail sales with steep progressivity of the tax rate. Large local market players are organised as independent companies operating under franchise systems. Consequently, their turnover is comparatively low, and they are subject to the lowest retail tax rates. International market players operate as integrated retail chains in Hungary, and they are subject to the highest tax rates. Moreover, a corporate restructuring of integrated retail chains into separate companies would not lower their tax burden since they would be considered as linked undertakings, and their turnover would still be aggregated for the retail tax purposes.
According to the 2023, 2024 and 2025 Country Specific Recommendations to Hungary, this tax disproportionally burdens larger foreign-owned companies and affects the Single Market, similarly to other sector-specific taxes introduced in the recent years and affecting the internal market. As part of its Recovery and Resilience Plan (RRP), which was endorsed by the Council on 15 December 2022, Hungary committed to phase out the retail surtax, which had been introduced in 2022 to increase the contribution of the retail sector to public finances. Despite its unequivocal political commitment in its RRP, Hungary has so far failed to phase out the surtax on the retail sector. On the contrary, Hungary has consistently prolonged this tax measure without indicating a clear timeline for expiry so far, and has, over time, increased the highest tax rates applicable under the retail tax regime.
