Minister defiant after EU Court says Hungary must tax homemade spirits

April 12, 2014

palinka

Hungarian Minister for Agriculture and Rural Development, Sandor Fazekas, told pro-government HirTV on Thursday that the government “will continue to support the practice of making homemade, hand-crafted drinks”.

The Court of Justice of the European Union ruled on Thursday that Hungary has failed to fulfill its obligations as an EU member state with regard to the assessment of excise duties on alcoholic beverages. The Court ruled that Hungary infringed EU law by exempting homemade spirits from excise duty.

The case was brought against Hungary by the European Commission on 19 April 2013.  The European Commission argued that Hungary had not complied with EU laws by setting the excise duty on spirits manufactured in a distillery on behalf of a fruit grower at HUF 0 up to a maximum of 50 liters per year.  Likewise, spirits made by a private distiller for the consumption of his own household are exempted from excise duty up to 50 liters annually.

The Court noted that the EU Council directive concerning the excise duty on alcoholic beverages already specified in which cases they may be exempted from the excise duty or subject to lower rates.  However, the directive does not allow member states to introduce preferential rules, the scope of which exceeds that permitted by EU law.

The Court noted that the provisions of Hungary’s law with regard to excise tax exceed the maximum 50 percent reduction permitted by the applicable EC directive. National rules exempting spirits manufactured by private individuals from excise duty were also found by the Court to be in violation of the directive.

Now that a judgement has been handed down, Hungary must comply. If the European Commission determines that Hungary has not complied with the judgement, the EC may bring further action in which it seeks financial penalties.

Background

The European Council Directive 98/83/EEC of 19 October 1992 was adopted to harmonize the structures of excise duties on alcohol and alcoholic beverages. The directive was amended concerning the conditions of accession of Bulgaria and Romania to the European Union in 2007. European Council Directive 92/84/EEC adopted on 19 October 1992 outlines the approximation of the rates on excise taxes for alcohol and alcoholic beverages.

In August 2010, Hungary’s parliament modified the country’s 2003 CXXVII. law on “Excise Taxes and Special Rules for Commercial Products Subject to Excise Taxes” – as published in the 132nd Hungarian Gazette (Magyar Kozlony) dated 13 August 2010.

The law was subsequently modified to reflect the current government’s desire to provide a total excise tax exemption for palinka distilled for personal use up to 50 liters per person per year. The Court points out that Hungary is not exempt from the European Council directive passed 18 years earlier.

Fidesz denounces decision as “scandalous”

Minister of Rural Development Sandor Fazekas appeared on HirTV, a Hungarian pro-Fidesz television broadcaster, for an interview entitled “Scandal” hosted by Akos Krakko.

HirTV: Minister, Brussels has been debating Hungary’s homemade palinka issue for a long time. What’s the European Union’s problem with Hungary’s homemade palinka? Are there lobby interests lurking in the background, or is the typical Brussels bureaucracy responsible for making the transparency of this issue so difficult to see clearly.

Fazekas: I believe that lobby interests have prolonged this issue. It is in the interest of large multinational distilleries and alcohol distributors to make sure there are less opportunities for those involved in traditional homemade palinka cooking, those who are protectors of traditional values. But it is also in the interest of the bureaucrats, because it’s an unprecedented provocation on behalf of the bureaucrats in Brussels targeting Hungary and the Hungarian people. The timing of this is no coincidence either, just before the European Union [sic] elections.

HirTV: Knowing what I know about the palinka consumption habits of the Hungarian people, it seems that instead of partnering with the Hungarian people, the European Union only accomplished upsetting the Hungarian people to the point of lashing out at the European Union’s legislators.

Fazekas: A provocation like this always mobilizes the radical groups, but in this case it has also mobilized those who love palinka. I think it’s important that I also use this opportunity to say the following. Palinka is our national drink, it’s a Hungaricum. For this reason, we should buy Hungarian beverages, and Hungarian palinka. We shouldn’t buy imported beverages. Aside from buying Hungarian palinka, we should also buy Hungarian wine which is also a unique treasure. Nowhere else in the world are so many different fruits utilized to make this delicious drink. It’s countryside-esque, and helps us sustain indigenous plant life – it preserves values. Hungarian palinkas have received good marks in international tastings.  It just so happens that we’re taking a new big step by selecting Hungary’s most outstanding palinkas and we’re going to publish our results to be decided by public opinion. Obviously, there are those who don’t want this to happen because every liter of Hungarian-made palinka that is consumed pushes out one liter of a mass-produced import.

HirTV: Minister, it’s obvious that many people agree with everything you’re saying because it is a good thing to consume Hungarian palinka in reasonable quantities. But what is the solution we need to ensure that good Hungarian palinka continues to have its place on the dining tables of Hungarians. Furthermore, we’re talking about our own palinka, the palinka we were allowed to distill tax-free up to 50 liters. How can you guys fight against the Brussels bureaucracy and the big lobby groups after this decision from Brussels?

Fazekas: People can still freely distill their own homemade palinka. The court’s position, or the court’s decision, does not supercede Hungary’s right to craft its own legislation. We are going to evaluate the court’s judgement closely and we’ll determine what kind of excise laws we can utilize to continue allowing Hungarians to freely distill their own homemade palinka up to 50 litres, and to allow someone who wants to hire a distillery to distill his own fruit-mash to do so in a tax-exempt way.

HirTV: So can people continue to distill their own homemade palinka just as they have done for the past three years without having to pay taxes? Are they obligated abide by the Brussels’ Commission and Court desire now that this decision has been made?

Fazekas: Our goal is to protect the Hungarian people. The judgement was just made, and we still have to find the legal solution for this. And we will indeed find one together with the National Ministry of Economics to help us maintain the current situation. It’s obvious that they want us to respond quickly to this, but we’re going to protect the current Hungarian interest and we want to keep things the way they are.  Because there is use for every single fruit, and there is a need for every plum and every peach when people want to distill their own delicious palinka. Also because this is our favorite drink at every event and on every holiday. We will continue to support the practice of making homemade handcrafted drinks.

Referenced in this article:

Magyar Kozlony 132. szam, kozlonyok.hu; 13 August 2010.

Judgment in Case C-115/13: Commission v Hungary, curia.europa.eu; 10 April 2014.

Skandalum, MNO.hu; 10 April 2014.