End of ‘illegal’ tax loophole to benefit whisky

Exported drinks to Hungary, especially Scotch whisky, should now benefit from a fairer playing field after an “illegal” loophole in the Hungarian spirits market was brought to an end.

The Scotch Whisky Association (SWA), who put Scotch whisky exports to Hungary to be worth £3.7million last year, launched two formal complaints with the European Commission (EC) and the European Court of Justice (ECJ) on taxation on issues to do with Hungary’s tax exemption for palinka, the country’s traditional fruit spirit.

Palinka had benefited from a zero tax rate as a result of a Hungarian government decision in 2010 placing domestically produced beverages at an advantage.

However following intervention from the SWA, on the basis that European Union regulations only allow a 50% reduction in certain circumstances, the ECJ ruled unequivocally that Hungary had breached its EU obligations and said that the tax exemption was illegal.

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.”

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, and 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.