The EC decided to send Hungary a reasoned opinion for granting an exemption from the public health tax to fruit distillates, such as pálinka, the national eau de vie, as well as to herbal liqueur which are mostly produced domestically. The EC noted that other spirits, such as vodka, whisky, gin and brandy are not exempted from the tax.

Such a practice violates Article 110 of the Treaty on the Functioning of the European Union which prohibits member states from imposing, directly or indirectly, on the products of other member states any internal taxation of any kind in excess of that imposed directly or indirectly on similar domestic products.

Hungary has two months to take action on the matter or the EC may decide to refer the case to the Court of Justice of the European Union (CJEU).

Commenting on the decision, the economy ministry insisted the tax on domestically produced spirits was in line with EU law.

“The government is examining the EC’s decision, but it does not consider the tax a market protection measure,” the ministry said in a statement. The ministry insisted the tax was actually a measure to protect public health.

“Despite today’s decision ... the government will continue to make every effort to reduce the consumption of unhealthy products...” it said, noting that the public health tax applies to most spirits, including mass-produced spirits.