Commission Decision (EU) 2018/160
of 30 June 2017
on the State aid SA.44351 (2016/C) (ex 2016/NN) implemented by Poland for the tax on the retail sector
(notified under document C(2017) 4449)
(Only the Polish text is authentic)
(Text with EEA relevance)
THE EUROPEAN COMMISSION,
Having regard to the Treaty on the Functioning of the European Union, and in particular the first subparagraph of Article 108(2) thereof,
Having regard to the Agreement on the European Economic Area, and in particular Article 62(1)(a) thereof,
Whereas:
By press articles published in February 2016, the Commission became aware that Poland was considering to adopt a law that would introduce a turnover tax on the retail sector featuring a progressive rate structure.
The Polish authorities replied to those letters on 2 March and 27 June 2016 respectively. By letter of 2 March 2016, the Polish authorities committed to communicate to the Commission the draft law once finalised. By letter of 27 June 2016, the Polish authorities informed the Commission that the draft law had already been submitted to the Polish Parliament and that its adoption was imminent. They also provided the Commission services with the text of the draft law.
By letter of 8 July 2016, the Commission informed Poland of its preliminary view that the retail tax under the Act (hereinafter: the ‘retail tax’) constituted State aid and requested the Polish authorities to express their views on the possibility of the Commission issuing a suspension injunction. A reply was received on 22 July 2016.
On 4 August 2016, the Commission received a State aid complaint against the same measure.
Poland submitted its observations to the Opening Decision by letter of 7 November 2016. The Commission did not receive comments from interested parties.
By letter of 11 January 2017 the Commission informed Poland that no comments from interested parties had been received and invited the Polish authorities to discuss with the Commission services their own comments as well as any amendments to the Act possibly envisaged. A video-conference meeting was held on 14 March 2017.
The Act lays down a tax on the retail sector in Poland.
In accordance with Article 8 of the Act, the obligation to pay the turnover tax arises when the taxable person achieves a monthly turnover in excess of PLN 17 million. According to Article 6(1) of the Act, the taxable base is the amount of turnover exceeding PLN 17 million from retail sales conducted during one month. The retail tax is payable on a monthly basis by the twenty-fifth day of the month following the month in which the taxed revenue was generated.
- the tax is levied at a rate of 0,8 % on the part of the undertaking's monthly turnover from retail sales over PLN 17 million (≈ EUR 4 million9) but not exceeding PLN 170 million (≈ EUR 40 million) and;
the tax is levied at a rate of 1,4 % on the part of the undertaking's monthly turnover from retail sales above PLN 170 million.
In light of Articles 6(1) and 8 of the Act, which exclude the part of the undertaking's monthly turnover from retails sales not exceeding PLN 17 million, the retail tax scheme can therefore be said to be based on a progressive rate structure comprising three different monthly turnover brackets subject to three different tax rates: a tax rate of 0 % on the amount of monthly turnover from retail sales not exceeding PLN 17 million; a tax rate of 0,8 % on the amount of monthly turnover over PLN 17 million but not exceeding PLN 170 million; and a tax rate of 1,4 % on the amount of monthly turnover from retail sales above PLN 170 million.
The Commission opened the formal investigation procedure because it considered at that stage that the progressive rate structure of the Polish tax on the retail sector constituted unlawful and incompatible State aid.
In particular, the Commission considered that the Act differentiates between undertakings engaged in the retail trade based on their turnover and therefore on their size and grants a selective advantage to undertakings with low turnover and thus smaller undertakings. Poland had advanced no convincing explanation why larger and smaller retail operators are in a different factual and legal situation when it comes to levying the tax on retail sales. Poland had therefore not demonstrated that the measure was justified by the nature or general scheme of the tax system. Therefore, the Commission provisionally considered that the Act gave rise to State aid, since all the other conditions laid down by Article 107(1) of the Treaty appeared to have been met.
Finally, the Commission raised doubts as to the compatibility of the Act with the internal market. The Commission observed that none of the exceptions laid down in Article 107(2) or (3) of the Treaty seemed to apply, nor did Poland advance any argument why the retail tax would be compatible with the internal market. It further recalled that it cannot declare compatible a State aid measure which entails an indissoluble breach of other rules of Union law, such as the fundamental freedoms established by the Treaty or the provisions of Union regulations and directives. At that stage, the Commission could not exclude that the measure predominantly targeted foreign-owned undertakings, which could entail a breach of Article 49 of the Treaty establishing the fundamental freedom of establishment.
The Polish authorities consider that the description of the retail tax in the opening decision as involving three different brackets and rates is incorrect. In the view of the Polish authorities, the retail tax has only two rates, given that revenues not exceeding PLN 17 million are not subject to the tax at all, regardless of the type of enterprise generating the revenue and of the total amount of revenues generated in the month concerned. In their opinion, a tax exemption is different from a zero tax rate and the thresholds apply to all taxable persons ‘on equal and objective terms’.
Regarding the purpose of the tax, the Polish authorities stress that the revenues to be generated by the retail tax would be assigned to financing the 500+ child benefit programme. However, given the estimated budget of this programme (i.e. approx. PLN 16 billion in 2016 and approx. PLN 22 billion in subsequent years), its financing would be achieved only in part through the retail tax (i.e. expected proceeds on a full year basis of approx. PLN 1,6 billion in 2017). Poland also argues that, besides representing an expenditure, the 500+ child benefit programme would also have a positive effect on the economy, by increasing consumption and, thus, having a direct impact on retailers' revenues.
As far as the measure's financing through State resources is concerned, Poland argues that the design of the tax does not imply foregoing revenues which in normal circumstances would have been collected from the retailers. In particular, the Polish authorities assert that the tax-free amount and the reduced tax rate of 0,8 % apply to all companies and that the Polish State is foregoing resources which it could otherwise obtain from all enterprises and not just smaller ones.
Poland also considers that a difference must be made between ‘global progressivity’, where different rates are applied to the whole turnover of undertakings depending of the size of such turnover, and ‘bracketed progressivity’ where different rates are applied to different parts (brackets) of the turnover of all undertakings. Bracketed progressivity would not entail, in Poland's view, any selective advantage because the same rate schedule applies to all retail undertakings. In particular, Poland argues that the progressive nature of the tax does not entail an advantage for smaller enterprises, given that the tax free amount and the reduced tax rate of 0,8 % reduce operational costs for both higher and lower revenue enterprises. For Poland, the higher revenues an undertaking generates, the more aid that undertaking receives.
In addition, Poland claims that the Commission incorrectly identified the beneficiaries of the advantage, because it would not always be true that enterprises with lower revenues are smaller enterprises and enterprises generating higher revenues are larger enterprises. In fact, according to Poland, enterprises' revenues are not directly, or at least not exclusively, related to their size.
Regarding the selectivity of the measure, Poland contests the reference system identified by the Commission and claims that only taxation on revenues in the retail sector exceeding PLN 17 million a month should be regarded as the system of reference. It then argues that the reason for this is the fact that revenues not exceeding PLN 17 million are not subject to the retail tax. It further claims that the design of the system is neither arbitrary nor biased and that the tax exemption applies to all taxable persons. It also argues, with reference to recital 26 of the Opening Decision, that it could not be concluded that the measure constitutes State aid without determining the single reference rate which serves as a reference point.
Second, in response to recital 32 of the Opening Decision, Poland argues that the average rate of the retail tax as determined by the Commission is an artificial construction. It claims that the structure of the retail tax is based on specific rates assigned ex ante to two specific brackets that apply equally to all taxable persons. Furthermore, ‘bracketed progressivity’ is not selective since the reduced rates are applied on the same terms to all undertakings, regardless of their size. As a consequence, in Poland's view, there is no differential treatment of enterprises which find themselves in a comparable factual and legal situation.
In light of the above, Poland argues that there is no need to present a justification by the nature or overall structure of the system. Nevertheless, the Polish authorities claim that the progressive structure of the retail tax and the progressive structure of the income tax should benefit from the same treatment and be considered justified for redistribution purposes. However, Poland does not provide any further arguments supporting this alleged justification.
Concerning the effect on trade and the distortion of competition, Poland presented the structure of its retail sector, and notes that stores generating the highest revenues (in shopping centres) are usually located in towns which ensures higher customer frequency than those located outside towns, where customers must bear travel costs. Small stores, in turn, are located mainly in small towns and in the countryside, where the opposite is the case (stores are less accessible and frequency and turnover are lower). It further observed that tax optimisation practices are commonly used in the group of sellers with the highest revenues, which leads them to pay no corporate income, tax and that sellers with high turnover benefit from economies of scale (the more they sell, the less the unit costs are) and tend to exert their influence to reduce producers and suppliers' margins to their own benefit. Finally, it noted that the development of modern trade in Poland has significantly weakened the segment of independent retailers (51 % of the market in 2008 and 37 % in 2015).
Poland concludes that: (i) even if it were to be considered that the retail tax is selective, competition would not be distorted because large-scale sellers already have a significant competitive advantage over small retailers and (ii) the progression in the tax rates of the retail tax limits adverse changes in the pattern of trade (the disappearance of small-scale trade coupled with the increase in large-format trade), which are currently distorting competition.
Finally, Poland argues that the Opening Decision unjustifiably limits Member States' autonomy in developing their fiscal policy. According to Poland, it is up to a State to develop the structure of a tax being introduced, i.e. the subject, tax base and rates, which is optimal from the point of view of the fiscal policy pursued.
The Commission has not received any comments from interested parties.
To constitute State aid, a measure must both be imputable to the State and financed through State resources.
Since the retail tax results from an Act of the Polish Parliament, it is clearly imputable to the Polish State.
The Act lays down a progressive rate structure that applies to all undertakings subject to the retail tax and the tax burden carried by each retailer depends on the brackets into which its turnover falls.
Turnover (PLN) | Marginal rate (%) | Tax (PLN) | Tax/Turnover (%) |
|---|---|---|---|
500 000 000 | 1,4 | 5 844 000 | 1,2 |
100 000 000 | 0,8 | 664 000 | 0,7 |
20 000 000 | 0,8 | 24 000 | 0,1 |
15 000 000 | 0 | 0 | 0,0 |
The reference system is composed of a consistent set of rules that generally apply on the basis of objective criteria to all undertakings falling within its scope as defined by its objective.
Contrary to what Poland claims, the objective of the retail tax cannot be said to be to finance budget expenditure under the Family 500+ child benefit programme. Poland confirmed that tax revenues cannot be allocated wholly and exclusively to finance a predetermined type of expenditure, so that an alleged link between child care and the retail sector has not been established, nor an alleged link between the cost of the child care programme and the size of the turnover of retail operators. The financing of the Family 500+ child benefit programme cannot be regarded as an objective intrinsic to the retail tax.
Rather, the objective of the retail tax is to tax the turnover of all economic operators involved in the sale of goods to natural person consumers. In the light of that objective, all undertakings deriving turnover from the sale of goods to natural persons should be considered to be in a similar factual and legal situation. The Commission therefore considers the reference system to be the retail tax applicable to the turnover of undertakings engaged in the retail sale of all sorts of goods in Poland.
The progressive rate structure's discrimination of retailers based on their size can also be said to favour retailers operating under a franchise model or independently (as company of civil law for instance) as compared to those operating under a holding company model.
Since Poland has designed the tax in such a manner so as to favour certain undertakings (namely retailers with low levels of turnover – smaller retailers – and retailers operating under a franchise model or independently (not within a chain)), and disadvantage others (namely retailers with high levels of turnover – larger retailers – and retail chains operating under a holding company model), the reference system is selective by design in a way that is not justified in light of the objective of the tax, which is to tax the turnover of all retail operators. Consequently, the Commission considers the appropriate reference system in the present case to be the imposition of a single (flat) rate tax on the monthly turnover generated from retail sales, without the progressive tax structure being a part of that system.
As a second step, it is necessary to determine whether the measure derogates from the application of the rules of reference in favour of certain undertakings which are in a similar factual and legal situation in light of the intrinsic objective of the system of reference.
As regards retailers that achieve a monthly turnover in excess of PLN 17 million: their monthly turnover below that threshold is exempted from taxation; their monthly turnover above PLN 17 million but not exceeding PLN 170 million is subject to a tax rate of 0,8 %; and the part of their turnover that exceeds PLN 170 million is taxed at a rate of 1,4 %.
Monthly revenue from retail sales | Retailer 1PLN 10 million | Retailer 2PLN 100 million | Retailer 3PLN 750 million |
|---|---|---|---|
Tax due on portion of revenue not exceeding PLN 17 million | 0 | 0 | 0 |
Tax due on portion of revenue above PLN 17 million but not exceeding PLN 170 million | — | PLN 664 000 (PLN 82 999 999 × 0,008) | PLN 1 224 000 (PLN 152 999 999 × 0,008) |
Tax due on portion of revenue above PLN 170 million | — | — | PLN 8 120 000 (PLN 579 999 999 × 0,014) |
Total tax due | 0 | PLN 664 000 | PLN 9 344 000 |
Effective average tax rate | 0 % | 0,664 % | 1,246 % |
As this table demonstrates, it is precisely the progressive rates and the brackets to which they apply that make the retail tax discriminatory between retailers (taxable person) depending on their level of turnover and thus on their size. Due to the progressive character of the rates laid down by the Act, undertakings with high levels of turnover are subject to both substantially higher marginal rates and to substantially higher average tax rates as compared to operators with low levels of turnover. Hence, the Commission considers that the progressive rate structure introduced by the Act derogates from the reference system – consisting of the imposition of a single (flat) rate tax on retail sales of all undertakings involved in the retail trade in Poland – in favour of retailers with lower turnover and thus smaller retailers.
In light of the foregoing considerations, the Commission considers the measure to derogate from the reference system and that it is therefore prima facie selective.
Poland argues that if the progressive tax structure of the Act is found to discriminate, which it disputes, it is justified on the grounds of its redistributive purposes, as is the case for profit-based taxes. Poland further claims that undertakings with high levels of turnover have a greater ability to pay, that such undertakings enjoy economies of scale, that such undertakings have the ability to exert pressure on producers' and suppliers' margins to their own benefit and that such undertakings often use tax optimisation strategies.
Progressive turnover taxes can only be justified by the nature and general scheme, i.e. the internal logic, of the tax system if the specific objective pursued by the tax requires progressive rates. For example in the case of a turnover tax intended to address some negative externalities, a certain level of progressivity could be justified if it was shown that the externalities created by the activities subject to the tax also increase progressively when the turnover (or size) of the taxpayer increases. No such justification has been provided by the Polish authorities.
Accordingly, the Commission does not consider the progressive tax rates of the retail tax to be justified by the nature and general scheme of the reference tax system. Therefore, the measure confers a selective advantage on retail undertakings with a lower level of turnover (and thus smaller undertakings).
According to Article 107(1) of the Treaty, a measure must distort or threaten to distort competition and have an effect on intra-Union trade to constitute State aid.
The retail tax applies to all undertakings deriving turnover from certain retail sales in Poland. The retail trade in Poland is open to competition and is characterised by the presence of operators from other Member States. Similarly, retail operators established in Poland may have – or develop in the future – activities in other Member States. Therefore, any aid in favour of certain industry operators is liable to affect intra-EU trade.
Indeed, the progressivity of the retail tax has an influence on the competitive situation of the undertakings subject to it. To the extent the measure relieves undertakings with lower levels of turnover from a tax liability they would otherwise have been obliged to pay, had they been subject to the same tax rate as undertakings with high levels of turnover, the selective advantage granted under those measures constitutes operating aid. The Court of Justice has consistently held that operating aid distorts competition, so that any aid granted to those undertakings should be considered to distort or threaten to distort competition by strengthening their financial position on the Polish retail market. Similarly, higher tax rates for larger (higher turnover) retailers may dissuade large retailer's sales and reduce their market share or force them to exit the market. Competition would be distorted as retailers would not compete only on the basis of their efficiency and competitiveness in the market place but would also face differential tax treatment depending on their turnover level which would not be justified by negative externalities they impose.
Consequently, the Commission considers that the measure distorts or threatens to distort competition and that it has an effect on intra-Union trade.
Since all the conditions laid down by Article 107(1) of the Treaty are met, the Commission concludes that the retail tax with its progressive tax rates structure constitutes State aid within the meaning of that provision.
The Commission notes that the Polish authorities have not provided any arguments why the retail tax would be compatible with the internal market. Poland did not comment on the doubts expressed in the Opening Decision as regards the compatibility of the measure.
The Commission considers that none of the exceptions referred to in the aforementioned provisions apply, since the measure does not appear to aim to achieve any of the objectives listed in those provisions. Consequently, the measure cannot be declared compatible with the internal market.
The Act was never notified nor declared compatible with the internal market by the Commission. Since it constitutes State aid within the meaning of Article 107(1) of the Treaty and new aid within the meaning of Article 1(c) of Regulation (EU) 2015/1589 that has been put into effect in violation of the standstill obligation laid down in Article 108(3) of the Treaty, that measure also constitutes unlawful aid within the meaning of Article 1(f) of Regulation (EU) 2015/1589.
The consequence of the finding that the Act constitutes unlawful and incompatible State aid is that the aid has to be recovered from its recipients pursuant to Article 16 of Regulation (EU) 2015/1589.
However, as a result of the suspension injunction issued by the Commission in its Opening Decision, Poland confirmed by letter of 7 November 2016 that it had suspended the payment of the retail tax under the Act.
Therefore, no State aid has been effectively granted under the measure. For this reason, there is no need to require recovery.
The Commission finds that Poland has unlawfully implemented the aid in question in breach of Article 108(3) of the Treaty.
This decision does not prejudice possible proceedings pursuant to Article 258 TFUE on the compliance of the measure with the fundamental freedoms laid down in the Treaty, notably the freedom of establishment as guaranteed by Article 49 of the Treaty,
HAS ADOPTED THIS DECISION: