Opinion Statement ECJ-TF 2/2020 on the CJEU decision in Case C-75/18, Vodafone, on progressive turnover taxes

The CFE ECJ Task Force has prepared an Opinion Statement on the CJEU decision of 3 March 2020 in Case C-75/18, Vodafone Magyarország Mobil Távközlési Zrt., on progressive turnover taxes. The Court held that the imposition of the Hungarian progressive turnover-based tax on the telecommunication sector did not infringe on the EU fundamental freedoms or Article 401 of the VAT Directive, and that the question regarding the prohibition of state aid was inadmissible.

Vodafone is especially important as it addresses a number of issues that are pertinent for the current debate about turnover-based digital services taxes. CFE Tax Advisers Europe notes that the Court’s decision in Vodafone provides clarifications for ascertaining the compatibility of domestic turnover taxes with the fundamental freedoms and with Article 401 of the VAT Directive. This is particularly relevant in the current context, in which some Member States have adopted or plan to adopt turnover-based digital services taxes.

Although provided with the opportunity, the Court has avoided to explicitly address AG J. Kokott’s arguments in the Opinion of 13 June 2019 relating to the correlation between the chosen distinguishing criterion (i.e., turnover) and the seat of the undertakings and the question whether indirect discrimination is to be taken to exist in any case if the distinguishing criterion was intentionally chosen with a discriminatory objective. Rather, the Court straightforwardly found that the distribution of the burden of a turnover tax between domestic and foreign or foreign-owned taxpayers is not an indicator of covert discrimination, unless the features of such tax “inherently” create a discrimination; the mere fact that most of the taxpayers are non-residents or owned by non-residents or that most of the tax raised is paid by them is just a “fortuitous” effect.

The CFE Tax Advisers Europe notes that this decision should not be seen as giving Member States carte blanche for all technical features of domestic digital services taxes, e.g., the choice of thresholds, the earmarking of revenues, or consolidation rules. One should also not forget other non-EU law concerns, given the structural inefficiencies that this type of taxes presents (e.g., economic effects, trade law, domestic constitutional law, double taxation, etc).

We invite you to read the Opinion Statement and remain available to discuss any queries concerning the publication.