EU Court Voids Regulatory Attack on Polish Retail Tax

Jaroslaw Kaczynski, center, the leader of the ruling Law and Justice party, speaks with lawmakers in parliament in Warsaw, Poland, in 2017. (AP Photo/Alik Keplicz,file)

(CN) – Backing a new tax on Poland’s retail sector, the European General Court ruled Thursday that EU regulators were wrong to classify the measure as state aid.

Poland leveled the tax at issue on Sept. 1, 2016, targeting retailers whose monthly turnover exceeded 17 million Polish zloty, about 4 million euros or $4.44 million. Retailers faced a 0.8% tax rate for monthly turnover between from PLN 17 million and 170 million, inclusive, and 1.4% beyond PLN 170 million. 

The European Commission quickly determined that the tax amounted to state aid, however, and forced Poland to suspend until it could decide whether the tax was compatible with the internal market. 

Poland complied, and the commission announced the following June that the tax at issue constituted unlawful state aid. 

Since Poland had suspended the tax before it was ever implemented, the commission did not order any recovery. 

Annulling that decision Thursday, the European General Court in Luxembourg found that the commission’s expectations of the tax scheme were unrealistic.

A press release from the court says the commission called for a scheme “in which retailers’ turnover is subject to a single (flat) rate of tax as from the first Polish zloty.”

“However, it must be noted that the ‘normal’ single-rate system referred to by the commission is a hypothetical system on which it was not entitled to rely,” the press release continues. “Whether or not a tax advantage is selective must be analysed in the light of the actual characteristics of the ‘normal’ system of taxation of which it forms part, and not in the light of assumptions that have not been accepted by the competent authority.

“As a result, the fact that the Commission identified, in the contested decisions, a ‘normal’ system that was either incomplete, without tax rates, or hypothetical, with a single tax rate, constitutes an error of law.”

The decision is not available in English, but the press release quotes the court as finding that “the only ‘normal’ system which could be relied on in the present case was the tax on the retail sector itself, with its structure including its range of progressive tax rates and its brackets.”

As for whether the tax discriminated among retail undertakings, the court called it “possible for the tax rules of a system of taxation to be inherently discriminatory with regard to the objective that that system is supposed to pursue.”

“It is reasonable to presume that undertakings with high turnovers might, through various economies of scale, have proportionately lower costs than those with smaller turnovers,” the press release states. “Therefore the commission was also wrong to consider that the objective of the tax on the retail sector was different to that put forward by the Polish authorities.”

Poland’s objective of producing revenue for the general budget “is not sufficient, in itself, to determine the nature of the various taxes,” the press release also states.

“Moreover, the progressive structure of the rates of a given tax cannot, in itself, be contrary to the objective of collecting revenue for the budget,” it continues.

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