On 29 April 2026, the European Commission decided to refer Hungary to the Court of Justice of the European Union for failing to abolish its retail tax. According to the Commission, the Hungarian retail tax infringes the freedom of establishment.
Who is most affected by the retail tax?
The Hungarian retail tax, originally introduced during the Covid state of emergency, has progressive rate based on brackets, meaning that the higher the turnover, the higher the applicable tax rate. While large, predominantly foreign‑owned retail chains operating in Hungary as integrated companies or linked undertakings are subject to high and steeply increasing tax rates on their Hungarian turnover, domestic retailers often operate under franchise systems through numerous separate, legally independent companies. As a result, their turnover is not aggregated and they are taxed at lower rates.
The legislation does not allow foreign retail chains to “fragment” their activities in a similar way to domestic retailers in order to reduce their tax burden, as they are classified as linked undertakings. Consequently, their turnover must still be aggregated and the tax calculated on that basis.
The European Commission’s reasoning
Country‑specific recommendations have long criticised the retail surtax, as it selectively and disproportionately affects large, primarily foreign‑owned companies and distorts competition. Although Hungary committed to the gradual phasing‑out of the retail surtax, the government has nevertheless repeatedly extended its application, failed to set a clear deadline for its abolition, and even increased the highest tax rate.
In the Commission’s view, this places foreign‑controlled companies at a genuine disadvantage compared to domestic ones and restricts the freedom of establishment by deterring or hindering undertakings from other Member States from establishing themselves on the Hungarian market. The Commission sent a letter of formal notice to Hungary in October 2024, followed by a reasoned opinion in June 2025. As Hungary contested the infringement and did not amend the tax system, the Commission has now lodged an action with the Court of Justice of the European Union.
As a result of the government change, significant modifications to the Hungarian tax system are expected, which may substantially reshape companies’ tax and regulatory obligations. Should you require expert support in navigating this evolving landscape, please request a proposal from our tax consulting team.
This article is for general information purposes only and should not be considered as advice.
