Scotch whisky wins Hungary legal challenge

SCOTLAND’S whisky industry has won another legal challenge to protect vital sales abroad.

The Hungarian market last year accounted for 3.7 million of Scotch whisky sales. Picture: Esme Allen

The European Court of Justice (ECJ) has ruled that the tax exemption for palinka, Hungary’s traditional fruit spirit, is illegal. The zero tax rate introduced by the government there in 2010 is a breach of European Union obligations, which allow only a 50 per cent reduction in duty under certain circumstances.

Removing the zero tax rate for palinka should create a fairer playing field for imported spirits in the Hungarian market, which last year accounted for £3.7 million of Scotch whisky sales.

The ruling follows a formal complaint by the Scotch Whisky Association (SWA), whose duties include protecting an export market worth more than £4 billion a year.

Separately, the European Commission (EC) has asked Hungary to amend legislation that applies two different rates of excise on spirits depending on their composition and production method. This also follows a challenge by the SWA.

The EC has issued a “reasoned opinion” asking Hungary to apply a single rate of tax on all spirits. European Union rules state that one excise rate based on alcohol content should be applied, as this stops the distortion of competition across the European market.

If Hungary does not comply within two months, the EC may refer the matter to the ECJ.