EU launches infringement proceedings against Hungary over price margin restrictions

The European Commission launched two infringement proceedings against Hungary over price margin restrictions on Wednesday. The first was initiated by the EU body in relation to food products, while the second concerns pharmaceutical products.

According to the Commission's statement, the freedom of establishment, which is one of the four pillars of the EU's common market, "requires public authorities to ensure the equal treatment and non-discrimination of economic operators". The decision states that the authorities are “to refrain from restricting economic activities unless such restrictions are justified to attain certain public interest considerations. Hungary limits the margin between purchase prices and sales prices of certain products to a level that no longer covers the costs of foreign companies beyond their costs for purchasing products, forcing non-Hungarian retailers to sell their products at a loss.”

A procedure has also been launched because the Hungarian authorities failed to award a high-value exploitation contract for sand and gravel mining sites in an open and transparent tender procedure. The European Commission cites the freedom of establishment and considers that the lack of transparency in the procedure in question precluded interested economic operators from participating in it. Additionally, the contract was awarded for a period of 20 years, with a possible extension of 30 years, and according to the Commission's statement, during this period, this will present a continuous violation of the rights of other interested parties excluded from the award process.

The European Commission has sent letters of formal notice regarding each of the above cases, thereby initiating the proceedings. Such a measure may be taken in cases of late, incorrect or incomplete compliance with EU law. The Hungarian government has two months to respond.

If the reply is not satisfactory, a further round of correspondence shall follow, as was also decided on Wednesday with regard to the case of the retail tax. The procedure on this issue was launched in October last year, and it is this second stage that the case has now reached. The European Commission began investigating the complaint submitted by Spar and the Austrian government in April 2024, as the Hungarian retail tax was considered discriminatory. Spar filed a complaint against the Hungarian state with the EU in early March, arguing that the imposition of a 4.5 percent special tax on mainly foreign retail chains is an infringement of EU law, as those operating under a franchise agreement are only required to pay 0-1 percent. They also objected to the price cap, which meant that some products had to be sold for less than they were purchased for.

The second Orbán government introduced a retail tax once after 2010, which led to infringement proceedings in 2011. However, this was closed in 2014, meaning that it did not result in EU litigation.

The European Commission also sent a second letter to the Hungarian government, (as it did to two other governments) requesting that it correctly transpose the provisions of the Child Sexual Abuse Directive. According to the communication, the legislation punishes material depicting the sexual abuse, exploitation and abuse of minors across Europe. The Directive includes minimum rules concerning the definition of criminal offences and sanctions and introduces provisions to strengthen the prevention of those crimes and the protection of child victims, as well as requiring Member States to ensure that effective intervention programs or measures are available for perpetrators. The European Commission found that the governments of three Member States had not properly transposed several of these provisions.

If they fail to reach an agreement in the second phase, this could lead to legal action and penalties.

In addition to the above, in its Wednesday package, the European Commission

• sent a second letter to the Hungarian government, along with three other Member States, for failing to comply with its reporting obligations under the Noise Directive;
• and launched a new procedure against Hungary for applying a carbon quota tax and a transaction fee to recipients of a significant free allocation of allowances under the EU Emissions Trading System.

“Brussels attacked Hungary” – the government reacts

The Hungarian government reacted to the news of the latest infringement proceedings in a social media post, saying that “Brussels attacked Hungary today because it finds the profits of multinational companies insufficient”. According to the government, this means that the EU wants to abolish the price margin restrictions, raise prices, and eliminate taxes on multinational companies. But apparently, there is also a Ukrainian angle to the story:

“Brussels only cares about Ukraine and the profits of multinational companies. They want Hungarian families to foot the bill for supporting Ukraine and pay for the profits of multinational companies,”

the post concludes.