CASE C482/18 GOOGLE IRELAND LIMITED Vs NATIONAL TAX AND CUSTOMS AUTHORITY OF HUNGARY KOMBA STELLAH BENJAMIN

CASE C482/18 GOOGLE IRELAND LIMITED

Vs

NATIONAL TAX AND CUSTOMS AUTHORITY OF HUNGARY

KOMBA STELLAH BENJAMIN

Facts

The case was referred to the court in 2018 for a preliminary ruling on whether the domestic tax of Hungary Violates Articles 56 and 18 of TFEU and Articles 41 and 47 of the Charter on Fundamental rights of the EU.

The law in question is a 2014 Hungarian tax law in which Article 2(1)(e) the 2017 version requires advertisers who publish adverts in Hungarian language or in Hungary to register for tax within 15 days and imposes a penalty of for noncompliance. Google Ireland violated this law and the Hungarian Tax Authority imposed fines for both the initial non-registration (10 million HUF) and for subsequent non-registration (1 billion HUF).

Google challenged these laws on the basis that they violate the freedom of providing services in Article 56 of TFEU by being excessive and that they were also discriminatory since the rules did not apply equally between residents and non-residents because the residents automatically qualified with the requirement to register for a tax return upon incorporation and penalty terms are more favourable to resident suppliers. Furthermore, Google stated that domestic procedure to challenge the tax authorities’ decision was different for residents and non-residents with non-residents being required to submit only documentary evidence, and that this was discriminatory.

The Hungarian Tax authority argued that these registration requirements and penalties are justified on the basis of maintaining tax integrity and that the limitation was proportionate.

Issues

7 questions were raised but court grouped them into the following 3 issues

1. Whether the requirement to file tax returns was discriminatory;

2. Whether the penalties imposed violated the freedom of providing services;

3. Whether the different judicial review mechanisms applied for residents and non-residents was non-discriminatory.

Court held that:

1. The requirement to file tax returns was not discriminatory because it was necessary to protect the tax integrity and as such did not violate Article 56 of TFEU;

2. The penalties violated the freedom of provision of services given that they were excessive and were tripling per day to non resident, and that the justification argued by the tax authority that they were preserving the integrity of the tax system was not applicable since it was disproportionate;

3. Court noted that the third category of issues regarding the judicial review mechanism did not need be further discussed since issue 2 was already held in the affirmative (in favour of taxpayer).​

Analysis

This case provides a perspective on the freedom of provision of services, non-discrimination restriction and the justification of proportionality. The court observed that whereas the requirement to register for tax returns was necessary, the penalties that were imposed were disproportionate and as such violated the freedom of provision of services.

These are summarized as follows:

(a) Fundamental freedom involved – Freedom of provision of services.

(b) Discrimination or restriction to cross-border services – The excessive penalties were restrictive to cross-border services, however, the requirement to file the tax returns is not discriminatory as it applies to everyone who was not registered.

(c) Justifications – The justification for imposing the huge penalty was that it was done to protect the integrity of the tax system.

(d) Proportionality – The penalties were not proportional because it was excessive.