Warsaw, 29^th November 2021

 

Opinion of the Chief Economist of the Union of Entrepreneurs and Employers
on rising prices of raw materials for energy

 

Prices of raw materials used for energy production have increased drastically over the last year. It was all the more dramatic as the recession that took place due to the COVID-19 pandemic lowered those prices “temporarily” to their lowest levels in more than a decade. Over a dozen or so months, prices rose from exceptionally low to extremely high. The global law of one price does not apply to natural gas and prices are still regionally shaped. In this case, price increases in Europe proved to be particularly steep. In Poland, the severity of high prices of some of these raw materials is further exacerbated by the unfavourable situation on the foreign exchange market.

The price increase in energy raw materials significantly impacted the inflation dynamics through rising costs of electricity, transport, and heating. In Poland, this is partially neutralised by the national coal policy. State-owned mining companies concluded some time ago long-term contracts for the supply of hard coal to Polish energy producers. Back then, it was supposed to protect, at least on a basic level, the interests of the hard coal sector. Last year, it meant the cost of coal was several dozen percent higher than market costs. This year, however, coal prices at least twice as low as in Europe.

Should prices of energy raw materials stabilise at an elevated level, this would result in a relatively short-term inflation spike. However, should the growth trend in this sector turn out to stay with us in the medium-term (which is hard to imagine today at the current prices), it will result in constant inflationary pressure. Already today, in the context of inflation caused by both internal factors and the external pressure on prices of energy raw materials (and consequently on prices of energy in various forms), there is talk of a social inequality becoming more severe. We are approaching the point where an increase in nominal wages will be tantamount to a decline, not an increase in real wages. This will be a mighty blow to the lowest-income groups who spend a major part of their salaries and wages on goods and services whose prices are particularly sensitive to energy prices and transport costs, such as food.

The sources of this increase are diverse. The increase in demand compared to the previous year due to economic growth (recovery after the deep slump the year before) played a critical role. Supply chains becoming longer or broken as well as the cold winter in the northern hemisphere contributed to this too. It seems, however, that one of the most principal factors in this case turned out to be the green policies for preventing climate change and limiting greenhouse gas emissions.

One must stress the fact that the challenge of rising prices of energy raw materials in Europe is not a short-term one. Apart from global factors, the increase in prices is influenced by regional conditions, including a high degree of monopolisation of supplies and climate policies. These policies, based on ambitious plans for a rapid reduction of emissions (as provided for in EU’s strategic agendas: European Green Deal and Fit for 55), are to bring about swift results in the most emission-intensive sectors of the economy, e.g. transport, energy and heavy industry. Natural gas, until recently considered a transitional fuel, plays a key role in European energy transformation (and in achieving the EU’s goal of climate neutrality). As Europe is dependent on natural gas imports, and the energy transformation is driving demand for gas, its suppliers gain strong political leverage. This applies particularly to Russia’s policy, although the uncertainty (expected and unassumed) of supplies from North Africa also raises concerns. Moreover, growing demand for gas in Asia has made Europe (and especially the EU) compete directly with Asian buyers. Since demand in Asia in recent years has started to exceed that of Europe, we are slowly becoming, to a certain degree, the price taker. This is also due to the development of maritime transport of LNG, as well as investments in a network of gas pipelines connecting Russian deposits with recipients in Asia.

Europe has been hit awfully hard this year by the crisis on the market of energy raw materials. Technological conditions and political choices mean that we can expect long-term problems due to soaring prices of fossil fuels and the ability of safely meeting the demand. These problems can significantly affect the quality of life of Europeans. First of all, directly through the price mechanism: increases in energy prices in various forms (electricity, heating, or fuel) may become gut-wrenching and indirect, because they will further boost inflation. Then, there is the risk of temporary shortages of fuel (which we have seen take place recently in the UK, already outside the EU) or gas or electricity (in the form of blackouts). An additional consequence may be such a high increase in production costs in the manufacturing sector that it will affect the development potential of European industry. We would then have to give up our dreams of a European re-industrialisation.

Such a negative impact on the quality of life (and possibly the dynamics of development), should this process prove to be permanent, may in turn spark a redefinition of the European political scene. It is therefore worth paying attention to the situation, because the mixture of (excessively?) ambitious climate policy goals, dependence on external gas suppliers, and unexpected turbulences in global markets may affect not only the fate of climate policy in Europe, but also the internal cohesion of the entire community.

 

Piotr Koryś, Ph.D.
Chief Economist of the Union of Entrepreneurs and Employers

 

See more: 29.11.2021 Opinion of the Chief Economist of the Union of Entrepreneurs and Employers on rising prices of raw materials for energy

Warsaw, 5^th November 2021

Position of the Union of Entrepreneurs and Employers on the draft act amending the Act on Foreigners and certain other acts

The draft act amending the Act on Foreigners and certain other acts was submitted to the Sejm on 22^nd October 2021. Already on 26^th October 26, it was sent to appropriate committees for its first reading. Apart from the Act on Foreigners, it also introduces changes to the following acts: on Repatriation, on Employment Promotion and Labour Market Institutions, on Healthcare Benefits Financed from Public Funds, and on Stamp Duty. In the draft act, there are a number of changes that will impact the both the legal situation of foreigners and their everyday lives, including work permits and related procedures.

The Union of Entrepreneurs and Employers decided to scrutinise the proposed changes. In our view, they are certainly beneficial and, to a large extent, a major step towards improving the situation of foreigners on the Polish labour market. Nonetheless, the proposals are insufficient and, in some respects, increase formalism and complexity of provisions regarding foreigners’ ability to enter the Polish labour market.

A crucial and desired change is to abandon the requirement to have a stable and regular income (thus far provided for in Art. 114 sec. 1.2) along with a place of residence (Art. 114 sec. 2) in the procedure to obtain temporary residence and a work permit. Certainly, such a solution should be considered a helping hand, because when foreigners decide to find employment in Poland, they will no longer be forced to have a place of residence and therefore long-term financial obligations. Furthermore, while the requirement to have a stable and regular income has been removed, Art. 114 sec. 1.4 remains guaranteeing that entities entrusting work to foreigners will provide them with remuneration which (in accordance with the proposed amendment to point Art. 114 sec. 1.5 of the Act on Foreigners) “is not lower than the minimum amount of remuneration for work, regardless of the working hours or type of legal relationship being the basis for the performance of work by a foreigner”. Such a solution is legally consistent and simplifies existing rules.

Amendments to Art. 119 and Art. 120 of the Act on Foreigners are welcome changes too that we evaluate positively. The amendment to Art. 119 will allow foreigners to perform work after the existing civil law contract is transformed into an employment contract, after changes to job post name while retaining the current scope of duties or increasing the working time provided it results in a proportional increase in remuneration. On top of that, pursuant to the amended Art. 120, foreigners working in Poland will not have to re-apply for a work permit as it is the case presently in the event of change to the entity they work for, because the existing one will suffice.

Undoubtedly, one of the draft acts key provisions is the amendment to Art. 88z of the Act on Employment Promotion and Labour Market Institutions. According to the new wording of sec. 2(3), entrusting work by means of an employer’s declaration is to be extended from 6 months to 2 years. This is a welcome change indeed, as it will eliminate the extremely high rotation of employees benefitting both employers and employees. The latter will gain greater stability and job security in the long term. It will certainly allow them to better assimilate and perhaps even encourage them to stay in Poland for a long time. The former, on the other hand, will not have to bear costs associated with frequent rotation of employees, such as recruitment, training etc.

Nevertheless, the question regarding potential future of employees at the end of the 2-year-long employment period on the basis of a declaration of entrusting work to a foreigner remains open. We believe there ought to be a mechanism enabling a foreigner to obtain a work and residence permits conveniently, regardless of the type of work performed and without the so-called labour market test (the procedure of verifying whether the employer’s staffing needs can be satisfied locally). This procedure does not meet the needs of the contemporary Polish labour market, which urgently needs an influx of workforce, that is, workers willing to settle in our country for a long time, looking for employment and starting families. We need to fill the generation gap leading not only to an economic slowdown, but also a growing burden on the social security system.

The Union of Entrepreneurs and Employers presented its proposals in this respect in our report “Poland’s migration policy – necessary directions for changes” ¹. They include, among others, the introduction of a “white and red card” which is a document confirming the right to stay and take up employment by a foreigner. It would be initially issued for a period not longer than 3 years, and later extended indefinitely if the foreigner meets specific criteria, such as no criminal record.

All in all, the Union of Entrepreneurs and Employers positively evaluates the draft act on the amendment to the Act on Foreigners and certain other acts in the form presented by the Polish Prime Minister. It certainly is a step in the right direction. However, we need a comprehensive immigration strategy which would take into account: the change in the model of immigration to Poland (from short-term and fast-rotating to permanent), the need to secure our domestic borders, and the necessity to control the dynamics of immigration processes. With this in mind, it would be reasonable to extend the proposed changes to include an easy path to change the declaration to entrust work to a foreigner into a work and residence permit.

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Find out more: 05.11.2021 Position of the Union of Entrepreneurs and Employers on the draft act amending the Act on Foreigners and certain other acts

Warsaw, 25^th November 2021

Commentary of the Union of Entrepreneurs and Employers
on the announcement of the “Anti-Inflation Shield”

Prime Minister of the Republic of Poland Mateusz Morawiecki presented today his plan to introduce an “Anti-Inflation Shield”. This package of solutions consists to a large extent of a series of temporary tax cuts, mainly concerning VAT and excise duty. The initiative to reduce these burdens considering rapidly growing inflation is in our view worth supporting. According to data from Statistics Poland, in October 2021, prices increased year-on-year by as much as 6.8%. This is a record high level, unheard of in years. Moreover, according to some forecasts, inflation is expected to continue to rise and in January 2022 it may even reach a double-digit level¹. This situation requires urgent intervention. Apart from monetary policy, there are also fiscal tools at the government’s disposal, and it is good news they decided to make use of them.

In terms of fuel prices, an excise duty reduction was announced to the minimum level permitted in the European Union to being on 20^th December 2021 and to last until 20^th May 2022. Minimum excise duty on fuels is set out in Council Directive 2003/96/EC of 27^th October 2003 restructuring the Community framework for the taxation of energy products and electricity (known as the Energy Taxation Directive), and it is different for each type of fuel. The second solution aimed at reducing fuel prices is the retail sales tax exemption from 1^st January to 31^st May 2022. The so-called “emission fee” is also to be temporarily abolished. These measures are to reduce fuel prices by PLN 0.2-0.3 per litre. It will not only impact drivers, but the whole industry and all consumers as transport costs are included in the price of virtually all goods.

Moreover, VAT on natural gas is to be reduced from 23% down to 8%. Natural gas is one of the most important energy resources used, among others, to heat households, water, and gas stoves. It is also of key importance in the energy industry. It is estimated that for households, a VAT reduction may translate into lower bills to pay – by several up to even several dozen zlotys per month. In terms of electricity prices, VAT will be reduced from 23% down to 5% in January 2022, whereas excise duty will be brought down to 0%.

Obviously, the reduction of costs which is to result from changes in tax on energy carriers is a step in the right direction. Rising energy prices are responsible for a significant part of the overall price increase – the reasons for these increases lie largely beyond the control of the state authorities. However, tax reduction is a mechanism that equalises these increases.

Another of the PM’s announcements we find praiseworthy is the introduction of savings in public administration. At this stage, we are unaware of any specific details, but limiting the number of jobs in administration has been one of the postulates raised by the Union of Entrepreneurs and Employers for a long time. The announcement of savings and caution in spending public funds on the functioning of the state sets a good course of action.

The Prime Minister also announced the introduction of the so-called “shield allowance” for people and families with the lowest income in the amount from PLN 400 to 1,150. Its purpose is to compensate for the increase in food prices. However, this is yet another public transfer of a social nature and will constitute a further burden on the state budget. Increasing the system of social benefit, which is already rather extensive, may turn out to be counterproductive and lead to an even higher inflation. We are unequivocally critical of this particular element of the “Anti-Inflation Shield”.

Furthermore, Prime Minister Morawiecki criticised the CO₂ emission allowance trading system and noticed its disastrous impact on energy prices in Europe. In our report “EUA: Price bubbles and the competitiveness of Poland and the European Union” of September 2021², we elaborated in detail on the price bubble on the emission allowance trading market. For this reason, we support the announcement of actions to improve this system.

To sum up, the Union of Entrepreneurs and Employees is in favour of most of the proposals envisioned in the “Anti-Inflation Shield”. The announced tax cuts may slow down price increases and they are the right response to one of the greatest inflation crises in years.

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See more: 25.11.2021 Commentary of the Union of Entrepreneurs and Employers on the announcement of the “Anti-Inflation Shield”

Warsaw, 26^th November 2021

Commentary of the Union of Entrepreneurs and Employers on the European minimum wage

Position of the European Parliament on the directive on adequate minimum wages in the European Union.

On 11^th November 2021, the European Parliament’s Committee on Employment and Social Affairs (EMPL) adopted the Parliament’s position regarding the European Commission’s proposal for a directive on adequate minimum wages in the European Union. The position provides for making part of the proposals contained in the draft directive stricter.

The first proposed amendment concerns Article 4 of the draft directive. Under the original proposal, member states with collective bargaining coverage less than 70% of workers should establish a framework of favourable conditions for their conduct, by law after consultation with the social partners or by agreement with social partners, and subsequently establish an action plan to promote collective bargaining. According to EMPL’s adopted position, the required percentage of employees covered by collective bargaining should amount to 80%.

It is also proposed to include thresholds among the rules for determining the minimum wage in an individual member state. These thresholds should come up to 50% of the average gross wage and 60% of the median gross wage in a given country. The draft directive referred to these values only as an example of recognising the minimum wage as “adequate”, whereas the proposed amendment introduces these values directly into Article 5 of the draft directive.

Yet another major amendment is the removal of the entire Article 6 from the draft directive. It provides that member states could, in certain cases, allow different levels of statutory minimum wage for specific groups of workers. This provision would also allow for the possibility to apply specific deductions which could bring workers’ remuneration below the minimum level.

While it is true that the proposed position does not require a plenary vote by the Parliament, the Scandinavians have already announced that they would seek to vote. In Sweden and Denmark, minimum wages are as a rule the subject of agreements between employers and employees. Their culture differs from most European countries in terms of minimum wages, as it is not established by law, and yet, thanks to extensive negotiations, even the lowest wages are quite high.

The opinion of the Union of Entrepreneurs and Employers on the directive on adequate minimum wages in the European Union.

The Union of Entrepreneurs and Employers has expressed its views on the issue of the minimum EU wage on many occasions. We believe the directive might be harmful to both the labour market and the European economy. It can aggravate the situation of the most vulnerable workers, make it harder for the EU to recover from the ongoing crisis, and disrupt well-functioning collective bargaining systems. And above all else, we oppose the introduction of the directive on grounds that the EU lacks the necessary competences to act in the field of wages. The political nature of the European Pillar of Social Rights is non-binding, and the directive is bound to have negative effects both in social and economic terms. Referencing Art. 153 sec. 1(b) of the Treaty on the Functioning of the European Union as the basis for the proposed changes does raise objections too. Indeed, this provision gives the Union the possibility to support member states in activities related to working conditions, however, the same article in sec. 5 expressly states that “the provisions of this Article shall not apply to pay (…)”.

In the opinion of Union of Entrepreneurs and Employers, the amendments to the directive proposed by EMPL constitute further interference of the European Union in matters in which it should not interfere at all. Should we assume that Art. 153 sec. 1(b) provides for interfering with the minimum wage policy in individual member states, these activities should only be of a supportive nature, instead of negating consultation mechanisms efficiently operating in certain countries (particularly in Scandinavia).

The solutions proposed in the directive may also contribute to the inflation crisis in Europe. Increasing wages should go hand in hand with growing GDP and depend on the market, not only on a legal framework imposed by means of a political decision. Some employees may find themselves at a weakened position as a result of these changes, as employers, fearing additional costs, may be reluctant to offer employment contracts, and will only offer part-time jobs.

What we also find worth emphasising in this context is the fact that the directive will not bring about any significant changes in terms of remuneration in Poland. The Polish minimum gross salary amounts currently to PLN 2,800, and it will increase to PLN 3,010 as of January 2022. Meanwhile, the average monthly salary in the enterprise sector, including profit payments, in the third quarter of 2021 amounted to PLN 5,885.75. This means that EU regulations will have little to no impact on the policy regarding the lowest wages in our country. On the other hand, the introduction of the directive will result in further formalisation of the labour market, and will therefore limit the possibilities of shaping the minimum wage policy in the future, especially in a crisis.

See more: 26.11.2021 Commentary of the Union of Entrepreneurs and Employers on the European minimum wage

Warsaw, 3^rd November 2021

Shame on the Ministry of Finance for discriminating against Polish companies

• Only 41% of CIT payers reported tax payable in 2018. Among “flat” PIT payers that share was 83%. Entrepreneurs who pay flat tax also effectively pay three times more income tax (in relation to income) than capital companies.
• The budget is being robbed by means of a commonplace CIT avoidance. The resulting deficit will be an even bigger blow to small Polish companies, because as our report proves, they are the ones where the entire tax burden is shifted.
• The Polish New Deal will only strengthen tax disproportions. Entrepreneurs from the SME sector must prepare for tax increases, while foreign investors (96% of whom operate in the form of capital companies) can count on further tax reliefs.

Earlier this year – in August, the Union of Entrepreneurs and Employers published the report “French companies in Poland” showcasing the enormous scale of tax avoidance among the largest French companies operating on the Polish market. Both the conclusions from this report and the enforcement of the New Deal by the government, containing solutions detrimental to domestic SMEs, prompted us to create a study showcasing tax discrimination of the smallest Polish companies.

“We can’t argue with facts. While Polish entrepreneurs, sometimes described by representatives of public institutions as “schemers”, reliably settle their taxes, capital companies seem to be paying their taxes on a voluntary basis,” claims Jakub Bińkowski, Member of the Board and Director of the Law and Legislation Department at the Union of Entrepreneurs and Employers. “And last time I checked we all used public infrastructure and services.”

The data gathered in the report is alarming. It confirms the fact that that there is a huge disproportion between taxation of SMEs and large enterprises. One of the largest mobile operators paid only PLN 30,000 income tax over a 5-year-long period, and a German discount retailer did not pay a single penny over that period, to name just a few examples of activities responsible for the CIT gap – now at PLN 35 billion.

The state tolerating such a state of affairs and practices is all the more irrational given the amount of public aid that corporations receive. In the years 2016-2020, a German car engine factory received almost a billion zlotys from the state and paid merely half a million zlotys in tax.

“Multinational ownership structures are very often used by large foreign players to lower their CIT,” explains Kamila Sotomska, the Union’s Deputy Director of the Law and Legislation Department. “Claiming that tiny taxes are the result of the scale of investments is completely unconvincing. In sectors such as telecommunications or e-commerce, there are gigantic differences in the effective scale of taxation, even though everyone is investing and spending massive resources on development.”

 

Find out more: 03.11.2021 Report by the Union of Entrepreneurs and Employers “Book of Shame of the Ministry of Finance – tax discrimination against Polish companies”

Warsaw, 2^nd November 2021

Commentary of the Union of Entrepreneurs and Employers
on the tax reliefs and exemptions planned under the “Polish New Deal”

This October, the Tax Foundation published its latest report on the tax-friendliness in OECD countries. In the 2021 International tax competitiveness Index, Poland was ranked 36^th out of 37 countries[1]. It is not the first time that we came second from the bottom: last year, we achieved a similar result, and we were placed 33^rd two years ago. Only in Italy, there is now a less friendly tax system. Therefore, there is no doubt that the urgent postulate of amendments to the tax law is justified, and one of the most important goals of these amendments ought to be the tax system simplification in order to make it both citizen- and entrepreneur-friendly. After all, it is no secret that the legal framework as well as its stability and transparency are some of the chief factors impacting economic development, the situation of domestic entrepreneurs, and strategic decisions regarding FDIs. For this reason, we decided to follow up on the tax system simplification to take place in Poland.

The “Polish New Deal” is a comprehensive economic programme shaped by the Polish government that has become a headline-grabber in recent months, and one of its main assumptions is to introduce a number of changes to the tax law. Some of the changes proposed will be welcomed with open arms and have been postulated for years, such as the increase in the tax-free amount and the change of its degressive character or the increase in the second PIT threshold. On the other hand, the draft acts contain a whole range of provisions that will be a blow to Polish enterprises and will bring more harm than good, for instance, the changes in the healthcare premium paid by entrepreneurs.

Another issue that we evaluate negatively is the introduction of numerous incomprehensible exemptions to general taxation in the form of tax breaks and reliefs. In our opinion, the rules on taxation of individual entities should be transparent, clear, and structured in such a way as to reconcile the interests of both the State Treasury and the taxpayer. This should be done without the need to create a long list of exemptions, the rules of which are in part incomprehensible, especially for an average citizen who is no expert in the field of tax law. On the official website of the Ministry of Finance, simplification packages for entrepreneurs are announced, and below we can read the full list of breaks and exemptions from the basic principles on which the tax system is supposed to be based. The catalogue thereof (with brief justification) is as follows:

• R&D tax relief supporting conceptual work on a new product.
• Prototype tax relief aiding the transfer of an idea into the language of practice and production.
• Tax relief for innovative employees facilitating competition for specialists with key skills and competences.
• Robotisation tax relief to facilitate the launch of a product-dedicated production line.
• IP Box relief to reduce the burden at the stage of sales.
• IPO tax relief along with investments in stock exchange debutants exemption to make it easier for Polish companies to enter the stock exchange market and find the investors they need.
• Consolidation relief addressed to companies which, by merging with another entity, decide to save, e.g. their contractor, supplier or other business in need of support.
• Expansion relief to enable double deduction of expenses on searching for new markets for Polish products.
• Attractive tax rules for investing through VCs as an incentive to invest capital in innovative Polish enterprises and startup companies.
• Modified and improved Estonian CIT – a modern taxation method that promotes investments and minimises formalities in tax settlement.
• Relief for the return of employees and small business – a tax incentive to return with experience and capital gained abroad.
• Lump sum for new investors – an incentive for entrepreneurs who have achieved success abroad to transfer their business management to Poland.
• Favourable tax conditions for sponsoring activities to facilitate CSR activities of companies as well as celebrities in the worlds of business, culture and sports.
• Capital return program – a proposal for those who have made risky tax decisions in the past and want to do business in Poland with a “clean slate”[2].

In view of the Union of Entrepreneurs and Employers, the proposed changes not only will lead to a greater complexity of tax regulations, but will also be the source of  additional legal risk. Each individual case where a specific tax break will have been applied will be associated with the risk of such a possibility being questioned by tax authorities. It may prove necessary to obtain individual tax interpretations, often resulting in legal disputes lasting many months, generating additional costs for entrepreneurs, but also unnecessary burdens on the tax authorities themselves. Creating incentives for the development of entrepreneurship in the form of a catalogue of tax breaks in the conditions of a dynamically developing economy, important in European terms, makes little sense. Many large entities operating in Poland pay close to no taxes, often as a result of tax optimisation. Small and medium-sized enterprises, however, need stable and clear tax rules much more than a wide range of tax reliefs. Meanwhile, the government proposes to significantly increase the effective public-law burdens by way of changes in the rules on healthcare premiums, on the one hand, while on the other, it creates a complicated system of tax reliefs, which entrepreneurs will most likely not be able to use without professional help of specialists, which translates into additional operating costs.

We are concerned that the changes proposed in the “Polish New Deal” will make the tax system, currently one of the most complex in the world, even less transparent. If the proposed reliefs are to positively affect the development any enterprises, it will be those from the tax advisory services sector. On those from other sectors of the economy, the changes might have the opposite effect.

 

See more: 02.11.2021 Commentary of the Union of Entrepreneurs and Employers on the tax reliefs and exemptions planned under the “Polish New Deal”

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[1] Tax Foundation, International tax competitiveness Index 2021.

[2] https://www.gov.pl/web/finanse/projekt-przepisow-podatkowych-polskiego-ladu-w-konsultacjach (date of access: 2^nd November 2021)

Warsaw, 10 November 2021

 

Joint Association letter on DMA –
or don’t throw the baby out with the bathwater

 

We, undersigned organisations, appreciate the opportunity to share perspectives on the upcoming crucial negotiations on the Digital Markets Act. Our community supports all initiatives aimed at improving the position of European businesses and users. While we understand the need to address certain challenges related to digitization, we urge EU policymakers to take well-informed decisions and mitigate any harmful consequences for European SMEs, entrepreneurs and users.

At a declarative level, the DMA aims to ensure fair conditions for online competition and improve the welfare of European consumers. These are goals we share and support as they represent an added value to the EU internal market and are beneficial to European businesses and entrepreneurs.

We fear however that both Parliament and Council have failed in addressing the various and damaging unintended consequences that the DMA could have on European SMEs, entrepreneurs and users.

While acting as gatekeepers in certain identified cases, platforms play a crucial enabling role for European entrepreneurship as they serve as a key gateway to the EU internal market. Although policymakers believe that the DMA is just about large technological companies, they fail to consider that proposed changes will inevitably bear a downstream cost for business users and consumers of those platforms. The implementation of the obligations by the gatekeepers should not affect the quality, functionality and integrity of the services that small businesses currently  benefit from. It is therefore crucial to ensure that the DMA avoids unnecessary restrictions that would undermine the value of the digital economy for European businesses.

We are worried by proposals that would impose gatekeepers to subject business users and consumers to an infinite amount of consent requests. Clearly, there are instances when providing consent in line with GDPR is appropriate in light of the sensitivity of the information processed. Nevertheless, it should not be forgotten that according to GDPR, there are six equally valid legal bases for data processing. These options would not be available for gatekeepers, as they would be required to collect consent for literally every kind of data combination. This will inevitably disadvantage business users and consumers who will have to navigate through a significant amount of complexity and friction due to constant pop-ups and consent clicks.

Additionally, overly broad restrictions to combine data would deteriorate the scale and quality of services offered to SMEs, ultimately decreasing their volume of sales. The inability to combine data from various services, such as maps and search engines, will lead to a decline in the quality of targeted advertising, which serves as a basis for many entrepreneurs’ business models. Moreover, certain services, like maps and search engines, are used by SME’s and app developers as a very useful, sometimes indispensable functionality of their mobile applications or websites.

In our view, informing users in an intelligible manner and allowing a meaningful choice is a more balanced approach that would prevent many negative effects. This can be achieved by aligning the DMA to the GDPR and ensuring that the collection of consent is not too intrusive on the overall consumer or business user experience.

We are also overly concerned about proposals from certain Members of the European Parliament to put an outright ban on targeted advertising. While prioritizing data privacy and the interests of the users, policymakers are neglecting equally important needs of entrepreneurs, for whom targeted advertising is the only possible way to attract clients. A ban on targeted advertising will impact many local businesses and services as well as a wide range of start-ups, freelancers, artists and craftsmen. European SMEs cannot afford advertising in mass media, and this regulation will inevitably weaken their position vis-à-vis large companies.

Moreover, targeted advertising is already subject to discussion within the framework of other regulations currently negotiated at the EU level. Its’ introduction in the DMA creates a risk of overlapping and conflicting legislation. It also shows that DMA has become a victim of the ‘Christmas tree effect.’ Rather than focusing on improving the original proposal at its core, MEPs keep on adding baubles.

In light of the above, it is clear that DMA is wrongly perceived as a regulation, which will only impact the gatekeepers. SMEs across the EU rely on digital tools to sell their products and services. In an increasingly digital economy, the quality and innovativeness of digital tools are essential for European businesses to grow and thrive. At the same time, by focusing merely on the gatekeepers, DMA lacks more positive proposals on how to unleash Europe’s entrepreneurial spirit and innovation.

To conclude, while DMA aims to improve the competitive balance, it might degrade the quality of digital tools provided to European businesses and users, stifle innovation, deteriorate the position of European SMEs in relation to large companies, and hence throw the proverbial baby out with the bathwater.

 

See more: 10.11.2021 Joint Association letter on DMA – or don’t throw the baby out with the bathwater