European outcry over ‘discriminatory’ Polish retail tax

By Natalie MORRISON

- Last updated on GMT

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© iStock

Related tags European commission European union Eu

A new Polish retail tax has angered European commerce heads who brand the decision “discriminatory” against foreign businesses.

The new system means large foreign retail chains will pay up to five times more tax than preferentially-treated local retailers, Christian Verschueren, director-general of retail and wholesale representative body EuroCommerce, said.

“This means that the 10 biggest foreign food retailers will pay 95.3% of the total tax, while the 10 biggest Polish food retailers will pay 4.7% of the tax,”​ EuroCommerce said.

The association is now calling​ on the European Commission to investigate the tax and whether it complies with EU law.

Moody’s has already predicted​ the tax could wipe out all Polish operating profits for supermarket giants Tesco and Carrefour. Portuguese retailer Jeronimo Martins is Poland’s largest retailer, and reportedly faces a bill upwards of €110 million under the new levy.

The new system follows suit with other Eastern and Central European nations including Hungary and Romania, which EuroCommerce say have imposed similar levies on foreign companies. EuroCommerce claims these countries are trying to make the sale of foreign products more difficult by regulating overseas business relations in “unrealistic and unreasonable ways”.

“This latest law will simply deter foreign competitors from investing, and undermine their contribution to providing choice and innovation in the Polish economy, and end up with Polish consumers footing the bill,” ​he said.

However, Prime Minister Beata Szydło argued: “The tax will give small commercial enterprises in Poland a fighting chance to compete on the market,”​ during talks with retailers in January​.

Call for investigation

EuroCommerce now urges the European Commission to launch an investigation into the legalities of the tax under EU law.

The tax law is not yet enacted, though EuroCommerce has made it clear they will seek to file an official complaint the minute it passes.

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Irena Sobczak, an Associate at the law firm Noerr, Warsaw told FoodNavigator that government statements suggest the law is not going to be officially previewed by EU institutions before it is enacted, 

Yet, the European Commission has already blocked similar progressive retail levies. Earlier this month, competition commissioner Margrethe Vestager found the Hungarian food inspection law – also a progressive rate based on company turnover -- in breach of EU​ State aid rules. The Commission concluded that basing tax rates on profits gave low turnover companies an advantage over competitors.

Companies should be “treated alike so that the contributions are levied on non-discriminatory terms,” ​Vestager said, before strongly condemning governments introducing policies in breach of EU law and the single market, ultimately harming local competitiveness and consumers.

“The Polish Act’s entering into force is independent of EC proceeding, however if the EC finds Polish law in breach of the EU law we can expect high fines and subsequent actions for damages of individual traders,”​ Sobczak said.

There are always nuances unique to any law which could affect EC decisions, but considering the outcome of the recent Hungarian case, blocking the new Polish law cannot be discounted, she said.

The Prime Minister’s economic aide, Minister Henryk Kowalczyk, said in January that Poland hopes its tax scale will be flat enough for the European Commission to take no issue, Bloomberg reported​, though he conceded “the risk is always there”.

So far government and parliament representatives have not discussed possible breaches with the EU law, though this could be the subject of further parliamentary talks as the legislation process continues, Sobczak added.

The new law

The Act has passed through the lower chamber of Polish parliament, the Sejm, and is now under review in the Senat (the higher chamber), Sobczak explained.

“Any significant amendments are not probable as it is one of the flagship reform of the ruling party that has majority in both chambers,”​ she said.

It is expected the act will be signed by the president Andrzej Duda by the end of the month and will enter into force from 1 September 2016.

The law was the brainchild of the country’s conservative, populist government as part of funding plans for proposed national welfare and social schemes, such as those related to child benefits.

Only physical retailers – not online sellers – are affected and those with a monthly turnover under zł 17m (€3.8m) dodge the levies. After the €3.8m bracket, companies with monthly turnovers up to €38m pay 0.8% tax and those pulling in upwards of €38m pay 1.4%

As an added sting for foreign retailers, they pay five times more tax than local chains for each 1% of turnover.

The modern retail sector has invested over €100 billion in the region since the accession of CEE countries to the EU, providing over 400,000 jobs and introducing high quality and safety standards, EuroCommerce note. 

In the build up to adoption in parliament, the law was met with similar discontent from local retailers as from foreign. In February, around 5,000 retailers took to the streets of Warsaw to protest the progressive tax​.

The retail industry is not the only one hit, with levies for banks also imposed in Poland earlier this year​ in a bid to raise funds for child subsidies.

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