The taxation of foreign webshops has been an important topic for years both in the European Union and in Hungary. However, the Hungarian retail tax rules in force since 2025 have created a special situation for online retailers and digital platform operators not established in Hungary, raising questions that differ in part from the EU law disputes seen to date.
Taxation of foreign webshops and EU law
The Hungarian retail tax has become one of the recurring points of conflict between EU law and Member State tax sovereignty in recent years. The debate has primarily focused on whether a revenue-based progressive special tax is compatible with EU law where, due to market structure, the actual burden is borne mainly by foreign-owned integrated retail chains. We have addressed this issue on several occasions, analysing the key lessons relating to progressive taxation, aggregation rules and the related infringement proceedings.
This article examines whether the rules governing the taxation of foreign webshops are compatible with the European Union’s fundamental freedoms, and whether they may result in discrimination against businesses engaged in cross-border e-commerce activities.
Road to an EU court case
In 2020, in the Tesco case, the Court of Justice of the European Union (CJEU) concluded that the progressive nature of the retail special tax does not in itself infringe the freedom of establishment. According to the Court, the fact that companies generating higher revenues are more likely to have owners from other Member States merely reflects the economic reality of the market and does not prove prohibited discrimination.
This legal dispute continued in the infringement procedure initiated against Hungary in relation to the Retail Tax Act introduced in 2020. As a result of the procedure, the repeal of the aggregation rule of the Hungarian Retail Tax Act has already taken effect as of 31 July 2026, including for the 2026 tax year. While the temporal scope of this amendment is understandable from a budgetary perspective, it does not provide a satisfactory answer regarding the EU compatibility of the rules applicable between 2020 and 2025, which remain unaffected. In our view, during that period the legislation infringed EU law, as it prevented foreign market participants from operating under the same business model used by Hungarian market players.
Beyond existing EU legal disputes
Interesting questions are also raised by the 2025 amendment to the Hungarian retail tax, which has not yet formed part of the EU compatibility disputes referred to above. This change affects not only the different tax treatment of integrated retail chains operating in Hungary and domestic franchise models, but also the taxation of foreign webshops and digital platform operators that are not established in Hungary for economic purposes.
Examples include:
- Amazon
- eBay
- AliExpress
- Alibaba
- Temu
- Shein
- Allegro
- Etsy
- Zalando
- About You
Until 2025, foreign sales of these businesses were simply exempt from Hungarian retail tax. Since 2025, however, Hungary has introduced a special progressive exemption rule, which has in practice led to a significant increase in tax liabilities for the affected businesses. Under the new rules, net sales revenues generated abroad also form part of the Hungarian tax base, while the corresponding tax amount may subsequently reduce the tax liability.
In the context of the taxation of foreign webshops, the question is therefore no longer simply whether a retail special tax may be progressive, but whether the regulatory approach whereby the legislator also takes into account the global revenue of these market participants when determining the Hungarian tax burden results in clear discriminatory treatment.
The 2025 legislative change: a departure from territorial logic
The original regulatory concept of the Hungarian retail tax was fundamentally territorial in nature. The connecting factor for Hungarian taxation was revenue from the sale of goods delivered within Hungary. This was consistent with the general tax principle that a state primarily taxes economic activities connected to its own territory.
However, the amendment effective from 1 January 2025 introduced a broader tax base definition for foreign retailers not established in Hungary. In these cases, the tax base includes not only turnover linked to Hungary but also the consideration received from the sale of goods delivered abroad.
Foreign revenue may push a taxpayer’s tax base into a higher tax bracket, after which the system provides a certain correction mechanism when calculating the tax. In practice, however, this more complex exemption mechanism has resulted in a significant increase in tax liabilities from one year to the next. This increase affects foreign retailers only, not domestic ones. As it applies exclusively to the taxation of foreign webshops, the progressive exemption mechanism has a discriminatory character, and the higher tax burden effectively results in a tax base exceeding domestic revenue becoming taxable in Hungary.
This issue also affects the retail tax obligations of platform operators.
Although the relevant provisions of the Hungarian Retail Tax Act do not expressly differentiate between domestic and foreign businesses, in practice they predominantly affect companies linked to other (EU Member) States.
A new dimension of non-compliance with EU law
The ongoing infringement procedure of the European Commission is primarily based on the argument that the Hungarian retail tax places foreign-controlled integrated retail chains and related entities at a disadvantage compared with businesses operating under domestic franchise systems. The discrimination arises because the aggregation rule introduced in 2020 for related entities prevents foreign businesses from restructuring their operations in a way that would enable them to achieve a similarly favourable tax position to Hungarian businesses.
The progressive exemption rule affecting the taxation of foreign webshops and platforms follows a different logic, but similarly places foreign market participants at a disadvantage compared with Hungarian businesses, potentially resulting also in an infringement of fundamental EU freedoms.
Could this open the door to tax refund procedures?
If the CJEU were to establish a breach of EU law, affected businesses could initiate special tax refund procedures. Under Hungarian tax procedural rules, taxpayers may request the refund of taxes paid on the grounds that the legislation establishing the tax obligation is contrary to EU law.
It is important to note that:
- it is not necessarily necessary to wait for the final CJEU judgment;
- procedures can already be initiated now;
- due to limitation rules, proper timing may be of critical importance.
This may be particularly relevant for businesses that have paid substantial amounts of Hungarian retail tax in recent years.
Our team of experts continuously monitors developments relating to the Hungarian retail tax, in particular the relevant communications and measures of the European Commission, the Court of Justice of the European Union, and the Hungarian government. Upon request, we are available to assist in clarifying strategic issues and potential procedural and enforcement options related to the Hungarian retail tax or the taxation of foreign webshops.
This article is for general information purposes only and should not be considered as advice.
