The European Commission has also today issued an injunction, requiring Poland to suspend the application of the tax until the Commission has concluded its assessment. This follows a decision the Commission took in July 2016 on a progressive turnover-based tax on the retail sector in Hungary, which the Commission found to be in breach of EU state aid rules because it granted a selective advantage to companies with low turnover over their competitors.
The investigation opened today concerns a tax adopted by Poland in July 2016 which applies to companies that operate in Poland and are active in the retail sale of goods. The tax only entered into force on 1 September 2016, and no payments were due yet.
Under the tax, companies in the retail sector would pay a monthly tax to the State based on their turnover from retail sales. In particular, the retail tax features a progressive rate structure with three different brackets and rates:
- a tax rate of 0% applies to the part of the company's monthly turnover below PLN 17 million (approximately €3.92 million),
- a tax rate of 0.8% is levied on the part of the company's monthly turnover between PLN 17 million and PLN 170 million (approximately €39.2 million), and
- a tax rate of 1.4% is levied on the part of the company's monthly turnover above PLN 170 million.
The Commission started to look into the matter following media reports. Poland did not notify the tax to the Commission. In August 2016, the Commission also received a complaint alleging that the Polish retail tax is in breach of EU state aid rules.
The Commission does not question Poland's right to decide on its taxation levels or the purpose of different taxes and levies. However, the tax system should respect EU law, including state aid rules, and should not unduly favour a particular type of company, for example companies with lower turnover.
At this stage the Commission has concerns that the application of progressive rates based on turnover confers a selective advantage on companies with low turnover and therefore involves state aid within the meaning of the EU rules. This progressive rate structure has the effect that companies with low turnover either pay no retail tax or pay substantially lower average rates than companies with high turnover.
According to the Commission's preliminary assessment, the progressive rate structure is not justified by the logic of the Polish tax system, which is to collect funds for the general budget. Poland has so far not demonstrated why larger retail operators should be taxed different from smaller players in light of the objectives of the tax on retail sales.
The Commission will now investigate further to determine whether its initial concerns are confirmed. The opening of an in-depth investigation gives interested third parties the opportunity to comment on the measures under assessment. It does not prejudge the outcome of the investigation.
Under EU law, Member States are competent to decide on their taxation systems. However, Member States must also ensure that their tax systems are in line with EU rules. In particular, the application of their taxes should not result in the granting of state aid (a more favourable treatment applicable to certain companies) unless it is compatible with EU rules.
In July 2016, the Commission concluded that a Hungarian progressive turnover-based tax on the retail sector was in breach of EU state aid rules because the progressive tax rates granted a selective advantage to companies with low turnover over their competitors. When it had opened the in-depth investigation, the Commission had required Hungary to suspend the application of the progressive rates until the Commission could complete its State aid assessment. As a result, Hungary did not collect any tax based on the progressive rates structure and no State aid was effectively granted. This meant there was no need for recovery in this after the Commission's final decision.