The financial results for Tesco last week brought forward a lot of comment and some interesting thoughts, not least the looming pension deficit and the exceptional items booked into the accounts. Oh, and the underlying performance, which was quite good.
But my eye was taken by a small piece in the results document. There were a couple of lines about the intensely competitive market in Poland, but then this:
“The introduction of a new retail tax in Poland remains suspended pending the outcome of the European Commission’s investigation. We continue to be cautious about potential legislative changes in our European Markets”.
Now this had rather passed me by; new retail tax, Poland, European Commission investigation? I’d missed this.
One of the good things about being in a University is that you meet some interesting people and one I have recently been involving as a researcher on a project (more on this in the future) is Dr Maria Rybaczewska, from Poland. So I asked her what this Tesco tax in Poland was about. Her response to me is as follows:
“On 6 July 2016 the Polish Parliament adopted an Act on retail sales tax, which was due to enter into force on 1 September 2016. The Act lays down a progressive rate structure for the retail tax with three different brackets and tax rates:
- A 0% tax is levied on the part of the undertaking’s monthly turnover from retail sales below PLN 17 million (approximately GBP 3.4 million),
- A 0.8% tax is levied on the part of the undertaking’s monthly turnover from retail sales between PLN 17 million and PLN 170 million,
- A 1.4% tax is levied on the part of the undertaking’s monthly turnover from retail sales above PLN 170 million.
The Retail Tax Act includes certain exemptions from taxation, including on-line shops and franchise stores both of which were extensively discussed beforehand.
However the European Commission raised concerns that the progressive rates based on turnover gave companies with a low turnover a selective advantage over their competitors; something they feel is in breach of EU state aid rules. Consequently, on 19 September 2016 the Directorate – General for Competition, following Article 108 (2) of the Treaty, initiated the formal investigation procedure, concerns referring to State Aid mentioned in Article 107(1) of the Treaty and the case of Hungary where no State aid was finally introduced as a result of European Commission intervention. This EC intervention has led to the postponement of the date when the new regulations enter into force unto, at this point, 1 January 2018.
According to the Commission Press release the investigation is not aimed to “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.”
On the other hand the Polish Government emphasises the fact that the tax on the retail sector does not lead to “discrimination between foreign and national companies in light of the Polish market structure, it does not differentiate on the basis of shareholding/capital structure, and it pursues a different objective (the revenue from the Polish tax will go to the general budget and, according to Poland, is needed to cover the expenses of the Family 500+ child benefit programme).” Poland also claims that the progressive nature of the tax is in line with the logic of the overall tax system in the country.”
One can read this situation in a number of ways and it will be interesting to see how this unfolds in the European Commission. No doubt some will applaud the intervention as showing care, concern and protection over small retailers. Others will be upset at the thought of the possible costs on ‘modern’ retail operations operating large stores. That many of those affected are international entrants to Poland is of course significant here, and in the wider anti-globalization mood many are in. There is of course a long tradition around the globe of seeing such stores as competitively (and possibly socially detrimental) and trying to restrict (France, Japan, Thailand and Malaysia are obvious examples amongst many) or tax them (the Public Health Supplement in Scotland).
But two other things stood out for me from Maria’s account: the exclusion of online and franchise stores. One wonders why this exclusion of online stores is there; surely if governments are looking at the changing nature of retailing, let alone the attributes of place and tax revenue streams, they would be looking to include such operating formats? Likewise the issue about franchise stores. So if Tesco split all their stores into separate businesses then they could avoid this tax, yet operate as they currently do? There may be other costs of course of such an action but on the surface it seems an odd approach. I understand the sentiment and reason (e,g, small affiliated stores such as Spar) but surely other ways of framing this to avoid/apportion tax could have worked. Meanwhile Media Saturn and Media Markt in Poland could be smiling quietly to themselves.