Information;Order — ECLI:EU:C:2021:919
Date: 2021-10-21
Language of the case: Hungarian
Court formation: Ninth Chamber
Subject matter: Taxation;Internal market - Principles;Value added tax
Procedure: Reference for a preliminary ruling
Origin: Hungary

Summary C-583/20 – 1 
Case C-583/20 
Summary of the request for a preliminary ruling pursuant to Article 98(1) of 
the Rules of Procedure of the Court of Justice 
Date lodged:  
6 November 2020 
Referring court:  
Kúria (Supreme Court, Hungary) 
Date of the decision to refer:  
24 September 2020 
Appellant:  
EuroChem Agro Hungary Kft. 
Respondent:  
Nemzeti Adó- és Vámhivatal Fellebbviteli Igazgatósága (Appeals 
Directorate of the National Tax and Customs Authority, Hungary) 
  
Subject matter of the main proceedings 
Administrative-law action concerning tax. 
Purpose and legal basis of the request for a preliminary ruling 
Under the penalty regime established as part of the Elektronikus Közúti 
Áruforgalom Ellenőrző Rendszer (EKAER) (Road freight electronic monitoring 
system), where a taxpayer who has been classified as a ‘high-risk taxpayer’ 
commits a minor infringement of the system, the fine he receives may not be less 
than an amount calculated on the basis of the value of the transported goods, and 
the fine may not be waived. The request for a preliminary ruling asks, first, 
whether the aforesaid penalty regime exceeds the limits of the power conferred on 
Member States by Article 273 of Council Directive 2006/112/EC of 28 November 
2006 on the common system of value added tax (‘the VAT Directive’) or goes 
beyond what is necessary to achieve the objective of collecting VAT and 
preventing evasion established in that article. Secondly, the request asks whether 
EN 
SUMMARY OF THE REQUEST FOR A PRELIMINARY RULING – CASE C-583/20 
 
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the aforesaid penalty regime is an obstacle to achieving the principle of free 
movement of goods, persons, services and capital. 
Questions referred 
(a) Must Article 273 of the VAT Directive be interpreted as meaning that a 
penalty regime under which taxpayers classified as high-risk taxpayers who 
commit a minor infringement of the Elektronikus Közúti Áruforgalom 
Ellenőrző Rendszer (EKAER) (Road freight electronic monitoring system) 
may not be fined less than 30% of 40% of the value of the transported goods 
and which does not allow for the fine to be waived exceeds the limits of the 
power conferred on Member States by that article? 
(b) Must Article 273 of the VAT Directive be interpreted as meaning that a 
penalty of the abovementioned amount goes (disproportionately) beyond 
what is necessary to achieve the objective of collecting VAT and preventing 
evasion established in that article? 
(c) Must Article 26(2) of the Treaty on the Functioning of the European Union 
(TFEU) be interpreted as meaning that the penalty regime applicable to 
high-risk taxpayers is an obstacle to achieving the principle of free 
movement of goods, persons, services and capital? 
Provisions of EU law cited 
– Treaty on the Functioning of the European Union (OJ 2012 C 326, p. 1): 
Articles 4, 7 and 26 
– Charter of Fundamental Rights of the European Union (OJ 2012 C 326, 
p. 391): Article 16 
– Council Directive 2006/112/EC of 28 November 2006 on the common system 
of value added tax (OJ 2006 L 347, p. 1; corrigenda in OJ 2007 L 335, p. 60, 
and OJ 2012 L 429, p 15): recital 4 and Article 273 
– Regulation (EC) No 1889/2005 of the European Parliament and of the Council 
of 26 October 2005 on controls of cash entering or leaving the Community (OJ 
2015 L 309, p. 9): Article 9 
– Case-law of the Court of Justice of the European Union: among others, 
judgments of 9 March 1978, Simmenthal (106/77, EU:C:1978:49); of 
13 November 1990, Marleasing (C-106/89, EU:C:1990:395); of 4 July 2006, 
Adeneler and Others (C-212/04, EU:C:2006:443); of 16 June 2005, Pupino 
(C-105/03, EU:C:2005:386); of 16 March 1978, Bosch (135/77, 
EU:C:1978:75); of 26 April 2017, Farkas (C-564/15, EU:C:2017:302), 
paragraphs 38, 59 and 60; of 9 February 2012, Urbán (C-210/10, 
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EU:C:2012:64), paragraphs 48, 57 and 58; of 10 July 1990, Hansen (C-326/88, 
EU:C:1990:291, paragraph 19); of 2 October 1991, Vandevenne and Others 
(C-7/90, EU:C:1991:363); of 27 February 1997, Ebony Maritime and Loten 
Navigation (C-177/95, EU:C:1997:89); of 22 March 2017, Euro-Team and 
Spirál-Gép (C-497/15 and C-498/15, EU:C:2017:229, point 2 of the ruling; and 
of 16 July 2015, Chmielewski (C-255/14, EU:C:2015:475, paragraphs 28 and 
29) 
Provisions of national law cited 
– Az adózás rendjéről szóló 2003. évi XCII. törvény (Law XCII of 2003 on 
General Taxation Procedure): Articles 113, 161, 226 and 237 
– Az Elektronikus Közúti Áruforgalom Ellenőrző Rendszer működéséről szóló 
5/2015. (II. 27.) NGM rendelet (Order 5/2015 of the Minister for the Economy 
of 27 February 2015 on the operation of the Road freight electronic monitoring 
system, ‘the EKAER Order’): Articles 2, 3, 6, 7, 12, 13 and 15 
Brief summary of the facts and the main proceedings 
1 The Nemzeti Adó- és Vámhivatal Fejér Megyei Adó- és Vámigazgatósága (Tax 
and Customs Directorate for the county of Fejér, part of the National Tax and 
Customs Authority, Hungary, ‘the first-tier tax authority’) carried out checks to 
monitor road transport activities during the period from 1 April 2017 to 30 June 
2018. In that context, it found that several of the 2040 declarations submitted by 
the company EuroChem Agro Hungary Kft. (‘the appellant’) in respect of freight 
shipments made under the Elektronikus Közúti Áruforgalom Ellenőrző Rendszer 
(Road freight electronic monitoring system, ‘EKAER’), which partly concerned 
shipments to EU territory, had not been correctly completed. Specifically, (1) in 
10 declarations it found a discrepancy of more than 10% as compared with the 
actual weight determined on the basis of the invoices, delivery notes and weighing 
records (incorrect declarations); (2) in 5 declarations there was no record of when 
the EU transport had commenced, and 573 declarations contained no record of 
when the vehicle had arrived at the unloading or delivery point (incomplete 
declarations); and finally, (3) in 2 declarations there were discrepancies in the 
stated places of delivery for EU shipments (false declarations). 
2 Because the appellant had been fined HUF 80 000 for an omission, it had been 
classified as a high-risk taxpayer for the period from 1 May 2017 to 31 January 
2019. The appellant had not appealed against the classification. 
3 By decision of 9 November 2018, the first-tier tax authority fined the appellant a 
total of HUF 106 629 113 for omissions. The Nemzeti Adó- és Vámhivatal 
Fellebbviteli Igazgatósága (Appeals Directorate of the National Tax and Customs 
Authority, ‘the respondent’), acting on an administrative appeal, upheld that 
decision by decision of 31 January 2019. 
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The respondent based its decision on the provisions in the EKAER Order 
concerning incorrect, incomplete and false declarations, and on various provisions 
in the Law on General Taxation Procedure. 
In the grounds for its decision, the respondent stated that the appellant was a 
taxpayer with sufficient experience but which had failed to exercise the care 
required of it in complying with its obligations to submit EKAER declarations in 
the cases that had been identified. Since the appellant was classified as a high-risk 
taxpayer, the imposition of a fine for omissions was unavoidable. 
However, the respondent assessed the mitigating circumstances in respect of the 
various infringements and consequently imposed the lowest fine possible. In the 
appellant’s favour, it found that: the appellant had not engaged in tax 
optimisation; it submitted its tax returns regularly; it made its payments; its tax 
account was in credit; it had not been fined for non-payment or omissions and had 
not been charged late-payment interest; it had displayed a reasonable willingness 
to comply with the legislation; the omissions were not intentional; there was no 
loss to the Exchequer; the infringements were minor; and the failings had not 
previously resulted in the finding of an infringement or the imposition of a fine 
against it. 
However, the respondent also noted that the omissions on the part of the 
respondent were not purely technical or administrative. The EKAER is a complex 
system which involves overseeing freight transport in order to monitor the 
movements and origins of goods; consequently, if the taxpayer fails to declare 
information that is mandatory under the legislation, or does not declare the 
information correctly, it hampers the tax authority’s monitoring operations. 
The respondent considered that no link could be made between the penalty 
imposed on the appellant and the fundamental right to property. It also stated that 
the legislative provision establishing the requirement to make a declaration does 
not impede the free movement of goods and services, that it safeguards 
competition and that it does not put Hungarian operators at a competitive 
disadvantage. 
4 The appellant lodged an administrative-law action against the decision; the action 
was dismissed by the competent administrative and labour court. The court ruled 
that, following an appropriate investigation of the facts, the respondent had 
correctly applied the substantive and procedural legislation in order to arrive at the 
conclusions in its decision, that its decision was within the scope of its discretion 
and the legal limits on its powers, was based on the assessment criteria established 
in the legislation and also took account of factors in the appellant’s favour, and 
that the fine on grounds of omission was proportionate. 
The court considered that the appellant’s argument that the minimum fine 
imposed on it as a result of its classification as a high-risk taxpayer was in breach 
of Article 273 of the VAT Directive, the principle of equal treatment, freedom of 
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establishment and the right to property, and that the fine distorted the market and 
caused a competitive disadvantage, was unfounded. 
5 The appellant has lodged an appeal against that final judgment. 
Main arguments of the parties to the main proceedings 
6 In its appeal, the appellant cites the case-law of the Court of Justice of the 
European Union (‘the Court of Justice’) as grounds for its contention that the 
Hungarian legislation must be interpreted in accordance with EU law and that the 
rulings and reasoning in judgments of the Court of Justice are binding on Member 
States, and therefore their content must take precedence in judicial proceedings, 
which may mean that the national legislation in question should not be applied, at 
least not to the letter. 
7 The objective of the EKAER is to detect and prevent VAT fraud. With regard to 
the VAT Directive, the establishment of the penalty regime applicable in cases of 
abuse falls within the jurisdiction of the Member States, which must, nevertheless, 
respect EU law and its general principles in this regard. According to the case-law 
of the Court of Justice, penalties must not go beyond what is necessary to attain 
the objectives of ensuring the correct levying and collection of the tax and 
preventing fraud. Relying on the judgment in Farkas (C-564/15), the appellant 
adds that in order to assess whether a penalty is consistent with the principle of 
proportionality, account must be taken inter alia of the nature and the degree of 
seriousness of the infringement which the penalty seeks to sanction, and of the 
means of establishing the amount of the penalty. Citing the judgment in Urbán 
(C-210/10), the appellant also notes that a provision of national law which 
provides for the imposition of a flat-rate fine for all breaches, no matter how 
serious, does not comply with the principles established in EU law. 
8 The appellant argues that, for the purposes of determining the amount of the fine, 
under the national legislation it is not possible to take into account the fact that the 
appellant was classified as a high-risk taxpayer as the result of a minor omission 
― it was fined HUF 80 000 for failure to return a questionnaire ― and that the 
amount of the fine was more than 70% of its taxable profit for the tax year simply 
because the company had only recently commenced operation and had not yet 
generated any turnover. 
9 Because of the abovementioned classification, the Authority was forced to fine the 
appellant at least the minimum amount. (Under general legislative provisions, the 
smallest fine the Authority can levy is 30% of the upper limit of the applicable 
fine.) However, the Authority was unable to impose a fine which reflected the 
actual seriousness of the specific infringement of the EKAER or the fact that the 
irregularities that were detected had not prevented the monitoring of the transport 
of goods, that there was no loss to the Exchequer, and that no evidence of tax 
evasion had been found. The appellant is therefore challenging the conclusion 
reached by the court of first instance that, since the minimum fine had been 
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imposed, the question of whether the penalty was disproportionate or failed to 
adopt a graduated approach could not even be raised in the proceedings. 
10 The appellant also claims that the fine, which was calculated on the basis of high-
value goods, does not reflect the degree of seriousness of infringements which 
amounted to administrative failings, particularly when one considers that, because 
the appellant was classified as a high-risk taxpayer, the fine could not be reduced 
pursuant to Article 161(1) of the Law on General Taxation Procedure, under 
which fines could even be waived. The appellant considers that the fine not only 
breaches the proportionality principle but also gives rise to a competitive 
disadvantage and breaches freedom to conduct business and the free movement of 
goods, and is therefore contrary to recital 4 of the VAT Directive. 
11 The appellant stresses that the minimum fine also breaches Article 273 of the 
VAT Directive because, while it is true that directives are binding on Member 
States as to the result to be achieved but leave it to the Member States to 
determine the method by which to achieve that result, in exercising that right 
within the meaning of Article 288 TFEU, Member States must respect the 
principle of equal treatment. The court of first instance declared that since the 
EKAER classifies domestic transactions and transactions between Member States 
in the same way, and since the appellant had been duly classified as a high-risk 
taxpayer, there had been no breach of the principle of equal treatment, and no 
corrective action was required by the court to enforce that principle. The appellant 
notes that, so far as it is aware, only Poland has adopted a similar regime, and that 
regime applies only to goods subject to excise duties; no other Member State 
differentiates between high-risk, neutral and trusted taxpayers. It also argues that 
where the purpose of penalties is to ensure the collection of VAT and the 
prevention of tax evasion, they may not result in differential treatment between 
economic operators that carry on the same activity. 
12 That appellant also notes that the European Commission has sent Hungary a letter 
of formal notice in connection with the EKAER system, in which it concludes that 
the system breaches the principles of tax neutrality and proportionality. 
13 The appellant also states that the imposition of proportionate fines would not 
undermine the objectives which prompted the legislature to introduce the EKAER, 
namely to achieve transparency in the transport of goods and to reduce VAT 
fraud. It argues that the shipments at issue did actually take place, that it complied 
with its declaration and payment obligations, that it was possible to monitor the 
goods, and that the Authority did not view the infringements as serious. 
14 Finally, the appellant repeats its proposal that an interpretation of Article 273 of 
the VAT Directive should be sought by means of a request for a preliminary 
ruling, in order to determine whether, having regard to the objectives of the 
EKAER system, the principles relied on by the appellant preclude that system 
from treating high-risk taxpayers differently in the event of an incorrect or 
incomplete declaration, such that high-risk taxpayers receive a larger fine which 
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cannot be reduced, and that, even for unintentional infringements, the amount of 
the fine must be more than 10% of the value of the shipment calculated on the 
basis of the invoice, having regard to the fact that the Authority was able to 
monitor the goods, the shipments were actually made and documented, and there 
has been no loss to the Exchequer and no tax evasion. 
15 The respondent disputes all the above arguments, for reasons not set out by the 
referring court. 
Brief summary of the reasons for the request for a preliminary ruling 
16 The Supreme Court must decide, in the context of this appeal, whether the fine for 
omissions imposed on the appellant under national legislation due to failure to 
comply with obligations under the EKAER is lawful in the light of EU law. 
17 The ability to monitor the transport of goods by road can be an effective tool in 
the fight by the European Union and the Member States against VAT fraud, 
helping to make checks far more effective. That is the objective ― also 
recognised by the European Union ― which the EKAER was intended to achieve. 
18 Under Article 273 of the VAT Directive, Member States may impose other 
obligations which they deem necessary to ensure the correct collection of VAT 
and to prevent evasion, subject to the requirement of equal treatment as between 
domestic transactions and transactions carried out between Member States by 
taxable persons and provided that such obligations do not, in trade between 
Member States, give rise to formalities connected with the crossing of frontiers, 
and that that option is not relied upon in order to impose additional invoicing 
obligations over and above those laid down in Chapter 3 of the directive. 
19 Under the EKAER, the requirement to make a declaration applies not only to 
domestic shipments but also to shipments from or to another EU Member State; 
failure to satisfy this requirement is penalised by a fine on grounds of omission, 
and the EKAER defines the amount to be used as the basis for calculating the fine 
and the factors to be taken into consideration in the calculation. 
20 The Supreme Court notes that, according to the case-law of the Court of Justice, 
with regard to administrative offences, the imposition of a system of strict liability 
is not disproportionate if that system is such as to encourage the persons 
concerned to comply with the provisions of a regulation and where the objective 
pursued is a matter of public interest which may justify the introduction of such a 
system (judgments in Hansen, C-326/88, paragraph 19; Vandevenne and Others, 
C-7/90; Ebony Maritime and Loten Navigation, C-177/95; Urbán, C-210/10, 
paragraph 48; Euro-Team and Spirál-Gép, C-497/15 and C-498/15, point 2 of the 
ruling; and Chmielewski, C-255/14, paragraph 29). 
21 However, when introducing legislation on the determination of administrative 
penalties, Member States must give the authorities power to assess the 
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circumstances of the infringement, so that the penalty can reflect the seriousness 
of the infringement and be proportionate to it; and, when establishing a penalty 
regime, they must respect the principles of EU law. The penalty must not exceed 
the limits of what is necessary in order to attain the objectives legitimately 
pursued by the national legislation in question; in other words, restrictive 
measures may be prescribed only in so far as they enable those objectives to be 
achieved, and the penalties must not be disproportionate (judgments in Urbán, 
C-210/10, paragraphs 57 and 58, and Farkas, C-564/15, paragraphs 59 and 60). 
22 In paragraph 50 of the judgment in Euro-Team and Spirál-Gép (C-497/15 and 
C-498/15), the Court of Justice stated that the requirement of proportionality 
precludes a system of penalties which provides for the imposition of a flat-rate 
fine for all offences, whatever their nature and gravity, under the rules on the 
obligation to make prior payment of the toll for use of a road infrastructure. In 
Urbán (C-210/10), the Court of Justice also ruled that the imposition of a flat-rate 
fine for all breaches, no matter how serious, of the rules on the use of record 
sheets for recording equipment in the road transport sector was contrary to EU law 
on the grounds that it breached the requirement for proportionality. With regard to 
VAT, in Farkas (C-564/15), the Court of Justice concluded that it seems 
disproportionate to impose on a taxable person, who purchased an item of 
property the transfer of which comes under the reverse charge regime, a tax 
penalty of 50% of the amount of VAT which he is required to pay to the tax 
authority, where that authority suffered no loss of tax revenue and there is no 
evidence of tax evasion, this being a matter for the referring court to determine. 
However, in paragraph 28 of the judgment in Chmielewski (C-255/14), the Court 
of Justice stated that, ‘in contrast to what is maintained by the European 
Commission, the requirement that the penalties introduced by the Member States 
under Article 9 of Regulation No 1889/2005 must be proportionate does not mean 
the competent authorities must take account of the specific individual 
circumstances of each case’. 
23 In the view of the Supreme Court, in standard situations the national legislation 
allows for the imposition of a penalty that reflects the seriousness of the 
infringement of the EKAER requirements and even allows for the penalty to be 
waived, and it therefore satisfies the proportionality requirement. However, the 
fact that the appellant has been classified as a high-risk taxpayer means that ― by 
contrast with the standard situation ― the Authority cannot levy a fine that 
reflects the seriousness of the infringement in question and the need for an 
effective deterrent against VAT fraud, in spite of the fact that the Authority itself 
has classed the infringements as minor and has concluded that there is no evidence 
of tax evasion. The appellant complied with its legal obligation to make 
declarations for the purposes of the EKAER, and there were only isolated cases 
where it omitted information or submitted inaccurate declarations. 
24 Because the appellant was classified as a high-risk taxpayer, the fine imposed on it 
was 30% of 40% of the value of the transported goods (that is to say, 12% of the 
value of the goods). The EKAER was established in order to improve monitoring 
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of VAT collection, but, as noted by the Supreme Court, the fact that the fine is 
calculated on the basis of the value of the goods (excluding taxes) means that it is 
only indirectly related to the tax. The standard rate of VAT is 27%, and therefore 
the fine amounts to almost half of the tax (12%), even though it was still possible 
to monitor the goods and there has been no loss to the Exchequer. 
25 In the view of the Supreme Court, the fact that, first, the national legislation does 
not permit the appellant (which was classified as a high-risk taxpayer because it 
had committed an administrative omission) to be fined less than 12% of the value 
of the goods and that, secondly, the fine is based on the value of the transported 
goods, makes it impossible to reflect the actual seriousness of the infringements of 
the EKAER. Fines imposed in accordance with this procedure impose a 
disproportionate burden on businesses, and may also therefore be an obstacle to 
fulfilling the principle of free movement of goods.