ECJ: the Commission failed to provide proper reasons for suspension injunctions against Hungary

  • 2020/06/19
  • kutatocsoport5

The European Court of Justice, acting on an appeal brought by Hungary and supported by Poland, published its judgment in Case C‑456/18 P Hungary v European Commission on 4 June, thus bringing an end to a five-year legal dispute involving Hungary, the Commission and the General Court. According to the judgment, the Commission failed to provide proper reasons as to why it regarded as necessary to order that Hungary suspend the application of the progressive tax rates of the health contribution to be paid by tobacco manufacturers and the food chain inspection fee imposed on certain food business operators until the conclusion of the Commission’s investigation. The Court of Justice has also set aside the judgment of the General Court at first instance which held up the suspension injunctions set by the Commission.

The dispute concerns the proceedings of the Commission against Hungary, started in early 2015 due to a pair of new tax measures introduced by the Hungarian legislature shortly beforehand. One of these measures was the health contribution imposed on tobacco manufacturers, which levied progressive tax rates on the turnover from the production or trading of tobacco products within Hungary, while also providing tax reductions to the businesses willing to realize investments in certain tangible assets. The other procedure concerned the food chain inspection fee, which was not a completely novel measure, but while it originally applied a uniform 0.1% tax rate to the turnover of food chain operators, it was also made progressive in the case of shops selling everyday consumer goods starting from 2015.

The Commission initiated a formal investigation procedure in both cases, claiming that the progressive rate of both the food chain inspection fee and the health contribution (and the reduction of the latter in the event of investment) resulted in undertakings in comparable situations being treated differently and could therefore be regarded as establishing State aid incompatible with the internal market. At the same time, the Commission issued a suspension injunction, requiring Hungary to suspend the implementation of both tax measures at issue until the end of the investigation. Hungary brought an action before the General Court against these suspension injunctions which joined the cases due to their similarity. The General Court reached a decision on 25 April 2018 in which it dismissed Hungary’s actions. The General Court held that the Commission has provided a sufficient statement of reasons for its contested decisions in which it clearly explained why it was necessary to adopt the suspension injunctions in the present case.

Hungary appealed this decision before the Court, alleging that the General Court committed errors of law regarding the discretion available to the Commission when it adopts suspension injunctions and its obligation to state reasons for those injunctions. In the interpretation of the General Court, the information provided by the Commission’s decisions made it clear that Hungary had the intention not to suspend the measures at issue during the investigation procedure. On the other hand, Hungary held that the reasons stated for the suspension injunction were insufficient.

In its decision, the Court reviewed the three reasons that the General Court considered sufficient to make it clear why Hungary was not going to comply with the obligation to suspend the implementation of the measures under investigation. First, the General Court claimed that it was clear from the decisions at issue that the Hungarian authorities had argued that the national measures at issue did not constitute State aid. On this point, the Court – following the opinion of the Advocate General in the case – noted that a Member State is perfectly entitled to defend itself by asserting that the measure in question does not constitute aid. Consequently, it cannot be deduced from this defence that there is an increased risk that the Member State will not suspend the measures at issue during the investigation procedure.

Second, the General Court referred to the fact that the Hungarian authorities did not respond to the Commission’s request to submit comments on the planned suspension injunctions. Regarding this argument, the Court opined that while the Commission must permit the Member State concerned to submit its comments on a suspension injunction to be adopted, on the other hand, this provision does not in any way oblige the Member State to actually submit any comments. Consequently, the fact that Hungary did not make any comments concerning the possible adoption of a suspension injunction was not sufficient to justify the Commission’s fear that it would implement the measures at issue.

Third, the General Court referred to the fact that, a few months before the adoption of the injunctions at issue, the Commission initiated a formal investigation procedure in respect of similar Hungarian tax measures, and those measures had not been suspended by the Hungarian authorities. The Court pointed out that, contrary to the General Court’s claim, this fact is not part of the context in which the injunctions at issue were adopted. Furthermore, if that previous conduct on Hungary’s part was a decisive indication for the Commission, it should have mentioned it in the decisions at issue, which was not the case.

Based on these arguments, the Court reached the conclusion that the General Court was wrong in holding that the Hungarian authorities were able to understand why the Commission decided, in the decisions at issue, to have recourse to the suspension injunctions. Furthermore, the Court found that not only could these factors not amount to a sufficient statement of reasons for the decisions of the Commission, but they were also not included in those decisions, which the Commission itself acknowledged. Therefore, the General Court added grounds to those set out by the Commission and thus exceeded the limits of its powers.

On these grounds, the Court set aside the judgment of the General Court and, considering the state of the proceedings, gave final judgment in the matter. As the Commission has itself acknowledged that the decisions at issue did not provide explanations of the reasons why it took the view that Hungary would not suspend the measures at issue despite initiation of the formal investigation procedure, the Court concluded that the suspension injunctions at issue are vitiated by an insufficient statement of reasons.  As such, the Court annulled the suspension injunctions without having to examine the other pleas in Hungary’s application.

Finally, to put this decision in context, it is crucial to mention that the Commission’s formal investigation procedures in question have been concluded on 4 July 2016 with the final decisions of the Commission (Decisions No. 2016/1846 and No. 2016/1848) reaching the conclusion that the national tax measures at issue did indeed constitute state aid that was unlawful and incompatible with the internal market. Given that these decisions were not disputed by either Hungary or a third party, they have since become final and binding.

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