Slovakia: New Slovak rules against large food retailers

The Slovak government has launched a series of controversial legislative initiatives against large – mostly foreign – food retail groups.

After a bold statement by several members of the ruling coalition that large food retailers allegedly have a dominant position in the domestic Slovak market and that there is a need for a fair redistribution of the profits they make, the Slovak government decided to tackle the allegedly huge disparity in the food supply chain. As a result, a new Act on a special levy for retail chains (‘Special Levy Act’ or ‘new Act’) was adopted in December 2018, imposing a special levy on large food retailers. Large food retailers will have to pay 2.5 per cent of their quarterly net turnover after each respective quarter of their accounting period. Not surprisingly this drew an immediate reaction from members of the opposition, and at the beginning of January 2019 they applied for a judicial review of the Special Levy Act at the Constitutional Court of Slovakia. Since this Act contains vague definitions, is possibly discriminatory and basically imposes a turnover tax which causes tax pyramiding, there are serious doubts about its conformity with the Slovak constitution, the Treaty on the Functioning of the EU as well as the VAT Directive. Furthermore, it was argued that the new Act has the potential to distort competition in the relevant market. In the event that the Constitutional Court refuses to block the new Act, large food retailers will be forced to pay the special levy. Failure to do so on time will result in fines of up to 0.2 per cent of the sum of the last known operating and financial income in the previous accounting period.

In addition to the Special Levy Act, a new wording of the Act on unfair trading practices in the food supply chain is currently being negotiated in parliament. It is highly likely that this proposed regulation will be adopted and will thus replace the current law (Act no. 362/2012 Coll.). The main objective is to help food suppliers and limit the potential dominance of their clients (in particular food retailers) which enables them to abuse their allegedly superior financial and bargaining power. It is already the fifth attempt at exerting influence over the market behaviour of large food retailers. Breaches will be sanctioned by relatively high penalties, in some cases even exceeding EUR 500,000.

Finally, an amendment to the Act on prices is also in the pipeline. The goal of the proposed amendment is to determine a reasonable profit and a reasonable margin for large food retailers. It prohibits the sale of goods at a price that does not cover the supplier’s production costs and sets a variable cap on the margin. Whether such a regulation complies with the Slovak constitution is very doubtful. If this amendment is adopted, those affected will be required to comply therewith. The proposed penalties start at EUR 50,000 and can reach up to five times the difference between the agreed price and the price which should have been agreed, or – if this cannot be ascertained – up to EUR 100,000.

It remains uncertain whether the controversial provisions will remain in force or are challengeable. In any case, all companies potentially affected by the respective regulations would be well advised in the meantime to review their market behaviour, their compliance with the legal environment currently in place, and to be aware of the possible consequences of the recently proposed regulations.