New EU infringement procedure against Hungary

The European Commission has opened infringement proceedings against Hungary over the ban on loss-making in the retail sector, in the form of a Formal Notice, arguing that it may restrict the freedom of establishment for businesses, the financial website portfolio.hu reports.

The law initiated by the government of Viktor Orbán compels companies with annual revenues over HUF 15 billion to close if they do not generate profit within two years.

There is no exemption in the bill for Hungarian retailers but Hungarian chains operate as separate franchises, which could allow the parent chain to bypass the rule.

The Commission claims the Hungarian government should withdraw the law in question, since it is disproportionate and makes a distinction indirectly between Hungarian and foreign companies.

According to the Hungarian government’s explanation, the purpose of the amendment is to prevent well-financed hypermarket and supermarket chains from using predatory pricing practices against smaller, typically Hungarian-owned retail companies by consciously choosing to temporarily incur losses.

However, "the new legislation distorts business competition in the Single Market and can become a trade barrier and hinder investments," the EC said.