EU suspends Slovak tax on retail food sector pending outcome of in-depth investigation

BRUSSELS (Reuters) - The European Commission said on Tuesday it suspended a Slovak tax on the food retail sector pending the results of an in-depth investigation into whether certain exemptions from the tax gave some retailers a selective advantage over their competitors.

The tax, which applies to food retailers that operate in Slovakia, entered into force on 1 January 2019 and the first payment would have been due by the end of April 2019.

"The Commission ... issued an injunction, requiring Slovakia to suspend the application of the measure until the Commission has concluded its assessment under EU State aid rules," the EU executive said in a statement.

Under the tax, food retailers would pay a quarterly tax amounting to 2.5 percent of their total turnover, but they would be fully or partially exempted if they fulfil one of several conditions on size, geographic scope of operation in Slovakia and/or type of activities.

Retailers in trading alliances or franchises would not pay the tax, even though their combined turnover is comparable to that of the largest retailers.

The Commission said the construction of the tax meant it would be paid only by seven food retailers, six of which were foreign-owned, and the only Slovak-owned retailer subject to the tax would have a significant part of its turnover exempted.

"The Commission does not question Slovakia's right to introduce a tax applicable to the food retail sector. At the same time, the tax system should respect EU law, including State aid rules, and should not unduly favour a particular type of companies, for example, companies operating in a smaller number of districts or members of trading alliances," it said.

(Reporting By Jan Strupczewski)