Tax breakthrough in Hungary

14 May 2014

Scotch Whisky, and other imported drinks, should benefit from a fairer playing field for trade in Hungary thanks to intervention by the European Commission (EC) and the European Court of Justice (ECJ) on taxation.

This is a breakthrough for the Scotch Whisky Association (SWA) which launched two formal complaints with the EC on tax and excise issues.

The ECJ has now ruled that the tax exemption in Hungary for palinka, the country's traditional fruit spirit, is illegal.

Palinka had benefited from a zero tax rate as a result of a Hungarian government decision in 2010. Following intervention from the SWA on the basis that European Union regulations only allow a 50% reduction in certain circumstances, the ECJ has strongly condemned Hungary's actions. The ECJ ruled unequivocally that Hungary had breached its EU obligations and also said that zero rate tax on palinka produced commercially and at home is illegal.

Separately, the EC has asked the country to amend its legislation applying two different excise rates for spirit drinks depending on their composition and production method. The SWA had filed a complaint regarding duty discrimination. The EC has now issued a 'reasoned opinion' asking Hungary to apply a single rate of excise on spirits. EU rules state that one rate of excise duty must be applied to all spirit drinks based on their alcohol content. This is to stop competition being distorted within the EU. If Hungary does not comply within two months, the EC may refer the matter to the ECJ.

Nick Soper, director of European affairs at the Scotch Whisky Association, said: "The decision regarding tax treatment and excise rates in Hungary is welcome news for the Scotch Whisky industry and for free trade in the European Union. The European Court and the Commission have condemned the protectionist tax discrimination in Hungary and the damage it could do to fair competition, a basic premise of the Single Market."


Scotch Whisky exports to Hungary were worth £3.7million in 2013.

The specific breach (palinka) was of article 22.7 of Directive 92/83. There was also a breach (no tax on home distillation) of articles 19-21 of the same Directive. 

For further information please contact Rosemary Gallagher, SWA communications manager, 0131 222 9230 or 07432 605385 or email
Twitter @ScotchWhiskySWA