Hungarian local business tax does not infringe EU law precluding member states from introducing any turnover tax apart from VAT, according to the European Court of Justice.
In its judgment handed down on 11 October 2007, the ECJ found Hungary’s local business tax (‘HIPA’) to be compatible with Article 33 (1) of the since restated Sixth VAT Directive.
This will be greeted with relief by the Hungarian government as well as Hungary’s many municipalities, since they no longer face the threat of having to repay large sums of unlawfully collected HIPA. However, businesses electing to challenge the HIPA in the expectation that it would be abolished should now seek expert advice how best to reduce their exposure to possible fines and late payment interest.
Despite the ECJ’s decision, HIPA remains a much-criticised and widely-debated tax. Proposals to abolish it repeatedly appear on the political agenda, but no real steps have so far been taken by the Hungarian government to do so.
