European Commission Takes Legal Action on Taxation Matters Across Member States

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In its routine set of infringement decisions, the European Commission initiates legal action against Member States that have not fulfilled their obligations under EU law. These actions, spanning multiple sectors and policy areas, are intended to ensure the correct implementation of EU law, benefiting both citizens and businesses. Below is an extract from the October Package concerning the Taxation and Customs Union.

HUNGARY URGED TO ABOLISH THE RETAIL TAX REGIME

The European Commission has initiated an infringement procedure against Hungary (INFR(2024)4022) for failing to align its retail tax regime with the freedom of establishment, as enshrined in Articles 49 and 54 of the Treaty on the Functioning of the European Union (TFEU). Hungary's retail tax regime imposes steeply progressive tax rates on foreign-controlled retail companies, unlike domestic retailers of similar size, who operate under franchise systems and are not subject to the same rates. This disparity effectively prevents foreign companies from restructuring their businesses in line with domestic counterparts, thus restricting the freedom of establishment.

The Commission's 2023 and 2024 Country Specific Recommendations (CSR) also noted that this tax disproportionately affects larger foreign companies, as have other sector-specific taxes in recent years. While Hungary’s Recovery and Resilience Plan (RRP) included a commitment to phase out the retail tax regime, no concrete timeline for its removal has been provided. Instead, Hungary has extended and increased the highest tax rates. As a result, the Commission is sending a formal notice to Hungary, which has two months to respond. Should Hungary fail to address the issue, the Commission may issue a reasoned opinion.

MALTA CALLED TO IMPROVE ASSISTANCE IN RECOVERY CLAIMS

The European Commission has also opened an infringement procedure against Malta (INFR(2024)2204) for failing to provide effective assistance in recovering tax claims from other Member States. Maltese legislation currently requires foreign claims to be recognized by national courts before enforcement, which is contrary to Article 12 (1) of Directive 2010/24. This article grants executive power to recovery instruments, bypassing the need for national recognition.

The Commission has given Malta two months to rectify the situation. If Malta fails to do so, the Commission may proceed with a reasoned opinion.

GERMANY ASKED TO ALIGN PENSION SAVINGS RULES WITH EU LAW

Germany is facing legal action for its rules on tax advantages related to voluntary pension savings contracts (Riester-Rente). The European Commission issued a reasoned opinion (INFR(2022)4014), calling on Germany to align its tax rules with EU law. Currently, residents of Germany employed in another EU/EEA state are denied pension-savings bonuses and special tax deductions for contracts signed after January 1, 2010, because they are not part of the German statutory pension scheme.

This restriction violates Article 45 of the TFEU and Article 28 of the EEA Agreement, which guarantees the free movement of workers. Germany now has two months to respond and take corrective action, or the case could be referred to the Court of Justice of the European Union (CJEU).

SPAIN, CYPRUS, POLAND, AND PORTUGAL REFERRED TO THE CJEU FOR FAILING TO TRANSPOSE PILLAR 2 DIRECTIVE

The European Commission has referred Spain, Cyprus, Poland, and Portugal to the CJEU for failing to notify the transposition of the Council Directive (EU) 2022/2523, also known as the Pillar 2 Directive, which establishes a global minimum tax rate of 15% for large multinational and domestic companies with a turnover of at least €750 million.

The directive, part of the G20/OECD's international tax reform efforts, is crucial for preventing tax base erosion and profit shifting. EU Member States must implement the necessary laws by December 31, 2023. Despite efforts by the four countries to finalize their legislation, they have yet to notify the Commission of their compliance. Consequently, the Commission is referring these nations to the CJEU.

SOURCE/ RECOMMENDED READ: 

• October infringements package: key decisions (europa.eu)