BUDAPEST, April 25 (Reuters) - Hungary's government

plans to sue Austrian supermarket chain Spar for defamation,

Prime minister Viktor Orban's chief of staff told a press

conference on Thursday.

"Proceedings will be opened against Spar, in court, and

presumably for defamation," Gergely Gulyas said.

Spar did not immediately respond to a request for comment.

The Austrian government and Spar sent letters to European

Union commissioners in March saying that a special tax

introduced in 2020 discriminated against foreign retailers in

Hungary, and was therefore in breach of EU law.

The European Commission said on April 5 that it was looking

into the complaints and will "ensure appropriate follow-up".

Taxes on retailers in Hungary have increased to as much as

4.5% of revenue since the government announced the special tax,

Spar Austria CEO Hans Reisch said in the letters dated March 4,

11 and 20.

"Foreign-owned retailers, including SPAR Hungary... face the

highest tax bracket of the special tax," Reisch wrote in a

letter seen by Reuters, adding that Hungarian competitors

operating in franchise chains consistently benefit from a lower

tax rate up to 1%.

The tax forces foreign retailers to operate at a loss

because profit margins in the retail sector are lower than 4.5%,

Reisch said.