Scotch whisky sales to Hungary are expected to benefit from a fairer playing field, thanks to intervention from two key European Union institutions.
Trade body the Scotch Whisky Association (SWA) hailed the move a breakthrough after two formal complaints to the European Commission (EC) about tax and excise issues.
The European Court of Justice (ECJ) has ruled that a tax exemption in Hungary for palinka, the country’s traditional fruit spirit, is illegal.
Palinka had benefited from a zero tax rate as a result of a Hungarian government decision in 2010.
Following intervention from the SWA on the basis that European Union regulations only allow a 50% reduction in certain circumstances, the ECJ has strongly condemned Hungary’s actions.
SWA said: “The ECJ ruled unequivocally that Hungary had breached its EU obligations, and also said that zero rate tax on palinka produced commercially and at home is illegal.
“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. 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.
“If Hungary does not comply within two months, the EC may refer the matter to the ECJ.”
SWA European affairs director Nick Soper added: “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.”