Warsaw, 22^nd June 2021

Opinion on demography of the Chief Expert of the Union of Entrepreneurs and Employers on Political Economy

It has been known for more than a dozen years that Poland is at risk of a demographic tsunami. Pursuant to that, the Union of Entrepreneurs and Employers has touched upon this subjects numerous times. The drastic decrease in fertility rate and the (quite obvious) dramatic decrease in the number of births accompanying it began in the final years of the Polish People’s Republic and lasted at least until the beginning of the 21^st century. This decrease and the subsequent stabilisation of the number of births translate into the fact that nowadays almost 2 times fewer children are born than in the early 1980s and approximately 30% less than at the threshold of the economic transformation. The time of the pandemic has shown how important a factor influencing the decision to parentage today is the issue of confidence and security. That period of uncertainty at the beginning of the pandemic brought about a sharp – though probably temporary – drop in births (an interesting case that remains to be seen is whether the next waves of the pandemic or how the right to abortion was exploited in the current political disputes will also affect the number of births this autumn).

Furthermore, the high migration wave after the accession to the EU brought about serious consequences. Although Poland has almost always been a region people migrated away from, the last wave of emigration has contributed to the deepening of the growing birth crisis. For a short period, politicians accepted it with a feeling of relief, as it resolved tensions on the labour market at the beginning of the 20^th century. This way, however, a significant part of the last numerous generation of Poles decided to leave the country forever, and often also to have kids abroad.

The declining pressure on the labour market, as well as the decreasing burden on the education system were viewed as benefits, or at least not as threats. After the problems on the labour market from the 1990s, Poland entered a period when it simultaneously benefited from European integration and a demographic premium (a decrease in the demographic dependency ratio resulting from decreasing cohorts of children and still small cohorts of retirees). The outflow of migrants helped further, relieving another of the costly welfare state systems: unemployment benefits. Economic growth was fuelled by the inflow of European development funds and the unchanging relatively low labour costs. However, as time passed, that demographic premium began to lose its significance and the cost of functioning of the state began to rise. Today, it is evident that we are on the verge of a major demographic crisis.

It is also worth adding that the actual fertility rate in Poland is difficult to determine – which is surprising, because the knowledge of what it really is should be the foundation of modern evidence-based policy (EBP). The above-mentioned wave of pre- and post-accession emigration is not properly registered in official statistics. As a result, in the calculation of the total fertility rate (TFR), we do not know the precise divisor. Many women aged 18-30 left Poland between 2004 and 2011, most probably never to come back. This generation still determines the Polish TFR. A fertility rate, in which the absence of a significant group of women in Poland is ignored, is certainly underestimated. And who knows by how much – is it 5, 10 or more percent? (Independent estimates put that number between 5 and 10%.) In fact, the administration, as well as all of us, are not able to compare the fertility level of Poland and – for example – Hungary, Slovakia or Austria. We only know what the situation looks like superficially.

And the situation of Poland is not an exception to the rule – a decline in the TFR below replacement-level fertility is a problem for the entire developed West, and Europe in particular. And some countries begin suffering from it too early, or at least quicker than the developed countries of the West – before they become wealthy enough and stabilise their prosperity. This is being said about China, but Poland and South Korea are equally good examples. Economic success translates into a decline in fertility rates, and the demographic premium is replaced by growing burdens from the growing cohorts of retirees. Labour costs followed by a workforce shortage grow regardless of productivity increases (because the labour market becomes unequivocally and fully the employee’s market). If there are no good solutions, the demographic crisis will translate into a decline in labour supply (actually, the symptoms of this problem are already visible, see below) and – with a high probability – a loss of competitiveness, and, consequently, a slowdown in economic growth and convergence processes with Western economies. One may hope that the increase in productivity will compensate for the decline in workforce, but this is most probably a false hope.

The economy is already feeling the falling labour supply. Admittedly, ministers are proud to report that we have passed the pandemic crisis safe and sound also with regard to unemployment. But I believe that the very low unemployment at the end of a deep crisis is not so much due to great aid and anti-crisis programmes, but rather is a serious warning bell that problems with labour supply are on the rise. The still low productivity of the Polish economy is compensated by the low level of wages and the availability of a (cheap) labour force. It looks like this model of economy is coming to an end, but unfortunately the structure of the economy changes more slowly than the demographic structure. This is due to one unexpected factor.

In recent years, Ukrainians and Belarusians have come to aid the Polish economy, seeking, like we had a few years earlier, a better life and a more normal world. They turned out to be a bit of an unexpected rescue – for employers, for the economy, for economic growth, and therefore (indirectly) for the government. However, unlike in the case of policies of many Western countries, it is difficult to indicate any action of government to encourage them to stay. All the while these are immigrants who are culturally close to us, who will potentially easily integrate with us, and are competent and educated. Many speak Polish well. It will be difficult to find “better” migrants in the future…

For the past dozen or so years, since the future consequences of growing demographic programmes have become more and more obvious, increasingly bold attempts have been made to remedy them. Tax breaks for parents as well as a large family card were introduced. The last of these attempts is the 500+ project, a financial support mechanism for people with children, which is also intended to be a stimulus to have children. However, quite quickly, even in official statements, the goal of this project began to evolve – and it became a symbol of the effective(?) social policy of the ruling party, Law and Justice. The topic of demographic or pro-family policy has been returning several times, for example when extending the 500+ programme to the first child. Thus far, regardless of official propaganda, all attempts have produced moderate results. The increase in the number of births after the introduction of 500+ from today’s perspective should be interpreted as an effect of accelerating the decision to have a child, and only to a small extent as an actual increase in the number of births. However, in order to find out the actual effects of the programme and the current fertility rate, it would be necessary to determine the actual number of women of childbearing age – hopefully the ongoing Census will help (and if it does not help, why do we need one at all?).

And only in this context, one must look at the new ideas of demographic policy in the Polish Deal. Unfortunately, they often boil down to promises regarding pro-family policy – as unwise as they are often redundant or long late considering the current situation on the labour market (such as incentives to create nurseries in each gmina, or commune). Basically, however, financial incentives (caring capital) are to be supplemented and a few privileges are to be added, which raises the question of why they are addressed only to families with children. Maybe the amount of 500+ will also be indexed.

Up until now, similar instruments have worked poorly (although no one intends to seriously conduct evidence-based policy and check which instruments are truly effective and only then support them). Perhaps, then, we need to look more actively for better solutions? Interestingly, politicians see the low effectiveness of the current policy and accept it with a certain amount of indifference or melancholy.

If we want the “golden age” of Poland’s development to last for the next years and decades (and this is what Law and Justice politicians are promising us), then we need an effective pro-family policy. And apart from the costly, but important and necessary (as long as they are properly designed) demographic policy programmes, we are also in need of a well-thought-out emigration policy. Two promises were made in the New Deal with regard to this. One empty and devoid of content: Poland will become an attractive country for specialists, thanks to government support mechanisms. And these specialists will pay taxes in Poland, not because it will be financially attractive, but because we will offer a better quality of life, conditions for integration, and security. The current level of salaries in Poland, the quality of public institutions (compared to our Western neighbours), and often the manner of conducting internal and international policies do not add any credibility to these words. Especially if it were to be supplemented with the second idea from the New Deal: a tax relief for returning emigrants (most probably, it will not have extravagant results either). And if, from their perspective, returns need to be made more attractive, then how can we expect that the same legal and tax order will be attractive for immigrants?

Much criticism has been directed towards “the gang in power”. I do not agree with all of it. However, one of their greatest sins will be the neglect of policies on family, demographics, and migration, because they may (though hopefully not) weigh on the next decades of Poland’s development.

Piotr Koryś, Ph.D.
Chief Expert of the Union of Entrepreneurs and Employers on Political Economy

See more: 22.06.2021 Opinion on demography of the Chief Expert of the Union of Entrepreneurs and Employers on Political Economy

Warsaw, 14^th July 2021

Polish entrepreneurs are hoping that the CJEU will recognize the so-called „VAT paid sooner” (PL: szybki VAT) on intra-Community acquisitions of fuel, which is a pillar of the government’s regulatory package known as the “fuel package”, as compliant with EU law

Fuel industry organizations (Polish Chamber of Liquid Gas – PIGP, Polish Chamber of Liquid Fuels – PIPP, Polish Petroleum Industry and Trade Organization – POPiHN, Polish LNG and BioLNG Platform – PPLNG ) and Union of Entrepreneurs and Employers – ZPP, took a position in a case pending before the CJEU, regarding the compliance of Polish VAT-14 regulations with EU law (C-855/19). The case is pending at the request of the Supreme Administrative Court in the case of G. Sp. z o.o. v Director of the Tax Chamber in Bydgoszcz. The reason for the joint motion was the opinion of the Advocate General of the CJEU, who found the regulations under review to be inconsistent with EU law.

The letter to the CJEU was agreed with the companies most widely using the existing rules. The signatories work for a competitive, customer- and business-friendly market, ensuring the safe and sustainable development of the economy, taking into account EU standards and European values. Following the amicus curiae* tradition of Roman law, these organisations submitted a position paper to the CJEU to assist the CJEU in deciding the case before it.

The scale of illegal fuel trading in Poland in 2015 reached over 20% of the legal market. One of the most popular models used by criminals was the importation of fuel by so-called “disappearing taxpayers”. The proposal to accelerate VAT prepayments on intra-community fuel acquisitions was proposed by fuel companies even before 2015. Such a solution, although it had a negative impact on the liquidity of entrepreneurs, was nevertheless necessary to combat organized crime.

Changes in regulations, especially the acceleration of the deadline for paying VAT advance on fuel purchases and the monitoring of transport, developed in cooperation with the fuel industry, resulted in a large increase in recorded sales. According to POPiHN calculations, tax revenues paid by the fuel industry in 2015 from VAT, excise duty and fuel surcharge were PLN 50 billion, and in 2019 ca. PLN 74 billion. Most of this increase was due to a reduction in the activities of criminals.

A formal and legal analysis may also support the conclusion that the mechanism of „VAT paid sooner” (PL: szybki VAT) is compatible with the EU law. The argumentation used by the Advocate General a contrario when comparing the scope of Articles 273 and 395 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax raises key doubts.

According to Krzysztof Rutkowski, legal counsel – The Advocate General of the CJEU presented a biased opinion that omits arguments for Poland’s position. In particular, there are doubts as to the interpretation of Article 273 of the VAT Directive according to which the demand for payment by way of future tax may concern only ‘net’ amounts and must therefore relate to the ‘result’ of the amount of VAT due for a given period, and not to the ‘gross’ amount of VAT. In my view, AG Saugmandsgaard’s view that under Article 273 of the directive Member States may impose only such ‘additional obligations’ which would be fully (i.e. 100%) compatible with the other provisions of the VAT directive is also incorrect. Such an interpretation deprives Article 273 of its substance and meaning.

Adoption of the Advocate General’s position may undermine the assumption of rationality of the EU legislator and should not be acceptable in the current legal system. At the same time, the position draws attention to the fact that the adoption of such an interpretation by the CJEU would means that national law would have to be amended in the contested area. In other words, one of the pillars of tax sealing, which significantly contributed to reducing gigantic pathologies in the liquid fuels market sector, will be undermined. 

Polish entrepreneurs hope that the CJEU will acknowledge the compliance of the “VAT paid sooner ” with the EU law. The adoption by the CJEU of the position of the Advocate General could undermine the confidence of legal business in EU law and EU institutions, and would also entail the risk of an increase in illegal fuel trading in Poland – said Marcin Nowacki, Vice-President of ZPP.

All members of the aforementioned organizations hope that the Court will take advantage of the benefit from the institution of amicus curiae and will accept the interpretation that Polish legislation on „VAT paid sooner” is consistent with EU law.

* Amicus curiae – a person or organization that is not a party to the litigation and voluntarily, on its own initiative, offers the court a legal or other opinion concerning the subject matter of the litigation.

See: Polish entrepreneurs are hoping that the CJEU will recognize the so-called „VAT paid sooner” (PL: szybki VAT) on intra-Community acquisitions of fuel, which is a pillar of the government’s regulatory package known as the “fuel package”, as compliant with EU law

Warsaw, July 13, 2021

 

Warsaw, 8^th July 2021

Commentary of the Union of Entrepreneurs and Employers regarding the proposal to tighten the ban on Sunday trade

On 1^st March 2008, restrictions on Sunday trade were enforced in Poland, which over time evolved into an almost complete ban. The authors of the act which made this solution law had two main goals in mind: to improve the situation of employees in the retail sector, and to boost the competitive position of small stores against larger chains.

From the very beginning of the debate revolving around this act, experts of the Union of Entrepreneurs and Employers have warned that most likely that neither of the assumed goals would be achieved. To back their thesis, they discussed other European countries that have in recent years been abandoning restrictions of this kind in the trade sector rather than introducing them.

Three years later, one can clearly say that our forecasts came true. The structure of the retail sector continues to change to the detriment of small shops (their numbers are decreasing, while the position of supermarkets and discount shops is growing). Retail chains have learnt to use new solutions in such a way as to change the purchasing habits of consumers and, as a result, the Hungarian scenario has become true in Poland – aggressive sales on Fridays and Saturdays have made customers used to making larger purchases once a week. At the same time, approximately half of the employees in the retail sector are still work on Sundays.

With the above-listed facts in mind, we evaluate the proposals to tighten the ban on Sunday trading, by restricting the exceptions mentioned in the act, as negative and consider them pointless.

First of all, in line with the arguments presented above, the ban on Sunday trade does not give a helping hand to  small shops. Statistical data on the number of stores shutting down for good seems to confirm this thesis sufficiently, however, we decided to develop an additional econometric analysis.

Using an econometric model, we examined the impact of the ban on sales volumes in small businesses. Increasing restrictions on trade on Sundays by merely a level causes a 6.3% drop in the value of food and drink sales in specialised stores which are companies employing less than 10 people, provided other factors remain unchanged. On the other hand, the introduction of a complete ban on Sunday trading causes a 25.2% decrease in the value of retail sales of food and beverages in stores that  are companies employing less than 10 people, providing other factors remain unchanged. Small neighbourhood grocery stores, which are supposed to be among the main beneficiaries of the Sunday trade ban, obviously lose out on this solution to the competition.

Secondly, the ban does not significantly improve the situation of employees in the trade sector. A significant part of them are still working on Sundays, and those covered by the act face increased traffic on the days preceding those when it is not allowed to sell goods. In this context, a much more effective solution would be to introduce a guarantee in the Labour Code of two Sundays off every month month for each employee, which we have been proposing for years.

And finally, there are significant doubts of a technical nature concerning the proposed model of tightening the ban. This is because (according to media reports) it would be based on the analysis of the share of revenues obtained by a given institution in the scope of activities covered by the exception. As a result, in order for a point of sales, which also operates as a post office, to be able to make use of the exception provided for postal points of contact and operate on Sundays, it would have to obtain at least 50% of revenues from the provision of postal services in the month preceding the inspection. This means that theoretically it would be possible for a particular institution to be open on Sundays in one month and be closed the following one. Moreover, such a construction would require recording revenues according to the division into activities covered by the exception to the ban on Sunday trading and other activities. Thus, additional confusion would arise – both from the point of view of customers who would not be sure whether a particular shop is open on Sundays in a given month, and from the point of view of entrepreneurs who would have to deal with new administrative obligations.

To sum up, the Union of Entrepreneurs and Employers opposes the Sunday trade ban and consequently also opposes the tightening of regulations in any scope. If the legislator were to consider any kind of modification to the regulations enforced in 2018, it should go in the opposite direction and aim at liberalising regulations and free trade on Sundays. The experiences of recent years have shown that the ban failed to achieve any of its original objectives.

 

See more: 08.07.2021 Commentary of the Union of Entrepreneurs and Employers regarding the proposal to tighten the ban on Sunday trade

Warsaw, 24^th June 2021

ZPP Report: Proposals of measures to end the abuse of pre-trial detention in Poland

In many countries, including Poland, the abuse of pre-trial detention is a severe problem. At any given moment, over 3 million people are held in pre-trial detention centres around the world. Disgracefully, in terms of the number of pre-trial detainees, Poland is among the leaders of this ranking. Per 100,000 citizens, there are 195 pre-trial detainees in Poland, while the EU average amounts to approximately 100. At the same time, there are three times as many people detained on a pre-trial basis in Poland than in Sweden, Finland or the Netherlands.

According to Cezary Kaźmierczak, President of the Union of Entrepreneurs and Employers: “Pre-trial detention should be limited to high-risk crimes involving violence only. Such a solution will bring great benefits to our society, and as the political struggle intensifies, this issue should also be in the interest of all politicians.”

The Union of Entrepreneurs and Employers (ZPP) published a report dedicated to the analysis of the legal systems of six selected European countries. Therein, the Union proposes a number of recommendations that would put an end to the abuse of pre-trial detention in Poland. Amongst the most important recommendations, there are the idea to limit pre-trial detention to high-risk violent crimes and the introduction of a statutory limitation of the maximum duration of pre-trial detention, with various maximum periods for minor and major offenses.

“Following the example of Finland, we propose to introduce of a burdensome system of fines based on the income of a given person as well as the so-called “summary penal fee”, which allows you to convert the sentence of up to 6 months imprisonment for minor offenses into a pecuniary penalty,” adds Kamila Sotomska, Deputy Director of the Department of Law and Legislation at the Union of Entrepreneurs and Employers.

The abuse of pre-trial detention violates fundamental rights and causes enormous harm to both the wrongful detainee and society as a whole. The proposed solutions will help curb this problem.

Find out more: 24.06.2021 Report by the Union of Entrepreneurs and Employers: The abuse of pre-trial detention

Warsaw, 15^th June 2021

ZPP Report: Through administrative practices, protectionist regulations on the domestic market, and a smear campaign against Polish companies France makes it difficult for Polish entrepreneurs to operate

The problems faced by Polish entrepreneurs in France are enormous. Polish companies are harassed by excessive controls and fines. At the same time, French law contains provisions that openly violate the freedoms of the single market, while a slanderous media campaign creates a climate in which it is easy to justify additional controls and restrictions.

According to Cezary Kaźmierczak, President of the Union of Entrepreneurs and Employers (ZPP): “France has a difficult time with accepting Polish entrepreneurs in a role other than cheap subcontractors. What we are dealing with are various repressions against Polish companies, and we believe that the Polish authorities are not fighting this phenomenon with enough spirit. If we want to change something in these matters, it is necessary to appropriately treat contractors from Western Europe who operate in Poland.”

The Union of Entrepreneurs and Employers published a report which collects entrepreneurs’ stories and recounts their problems related to running a business in France. While the report was being created, the Union encountered severe methodological limitations. In fear f repercussions from the French authorities, numerous entrepreneurs chose not to discuss their problems or asked for confidentiality and anonymity. Fear is therefore an important factor limiting the availability of data.

The story of FructoFresh is testament to how the French administration allows domestic companies to build their economic position while in direct violation of European law – to the detriment of both consumer safety and the integrity of the single market. The French labour inspection intimidated the representative of Aterima Work to such a degree that he gave up running business operations in France. And the case of the unlawful impound of a vehicle owned by a Polish transport company shows just how painful the inactivity of the authorities can be in the face of problems of Polish companies.

“Moreover, applying the notion of social dumping stigmatises posted workers. The very concept is based on comparing the illegal practice of marketing products below their production price with the perfectly legal practice of carrying out work at a more competitive rate. It also suggests that working in another member state is something forbidden, when in fact it is one of the foundations of the single market,” adds Kamila Sotomska, the Union’s Deputy Director of the Department of Law and Legislation.

See more: 15.06.2021 Report by the Union of Entrepreneurs and Employers Problems of Polish entrepreneurs in France

Brussels, 19 July 2021

Open Letter on the Digital Services Act (DSA) and Digital Advertising

 

We are a broad-ranging coalition of European stakeholders from the digital advertising and media ecosystem, including digital media publishers, content creators, communications agencies, technology providers, eCommerce businesses, entrepreneurs, and software developers. As the European Parliament moves to finalise its position on the proposed Digital Services Act (DSA), we respectfully voice our firm opposition to the ban on targeted advertising that has been put forward by some political groups. More broadly, we call on the EU legislator to recognise the value of the EU’s existing legal framework for privacy and data protection and to avoid the inclusion of provisions in the DSA that would undermine it.

We fully support requirements in the DSA proposal that seek to improve the overall B2B and B2C transparency of digital advertising. However, we cannot endorse a European law that aspires to constrain online business models through bans and prohibitions of practices that are already comprehensively regulated by existing privacy and data protection laws. If reflected in the final text, such disproportionate, unjustified restrictions would heavily undermine the sustainability of European media and the open internet as well as perpetuate legal uncertainty, including by creating unprecedented complexity in compliance and enforcement.

The functioning of democracies critically depends on citizens having access to services, knowledge and information online. A ban on targeted advertising would effectively strip businesses of critical revenue that enables them to guarantee such access and deprive European citizens of a significant portion of the content and services they benefit from today. Without a clear alternative, more content and services would be pushed behind paywalls, with disproportionate effects on lower-income households in particular. Consumers who do not wish to receive personalised advertising or be “tracked” online can simply leverage existing law to refuse it, before they even start consuming ad-supported content.

The recently-released Reuters Institute Digital News Report 2021 cites ‘pressing concerns about what happens to those who have limited interest or who can’t afford it’ as ‘more high-quality content [is] disappearing behind paywalls’, whereas a study requested by the CULT Committee ‘Europe’s media in the digital decade’ warns of a ‘decline in the access to relevant information’ as a result of content becoming paid-only.

Moreover, such measures would undercut market entry opportunities for start-ups and SMEs in need to reach their customers, create brand awareness and scale, especially in current times when economic recovery is key. Personalised ads are instrumental for regional SMEs and exporters with unique products who need to reach a global customer-base, but also essential for EU´s big brand champions whose business is fundamentally supported by improved addressability, as they seek to provide the right marketing messages to the right audience at the right time.

The EU has the most sophisticated privacy and data protection legal framework in the world, with heavy sanctions. If the Parliament wishes to increase consumer trust online – one of the adduced objectives of theDSA proposal – it should insist on effective enforcement of that current framework and reject the temptation to extend the scope of the DSA in ways that would create regulatory turmoil and put the financial stability of the Europe’s local businesses and media in peril.

See more: Open Letter on the Digital Services Act (DSA) and Digital Advertising

Warsaw, 16^th July 2021

 

The Union of Entrepreneurs and Employers launched a project to help companies from Belarus in cooperation with the city of Łódź

 

The Union of Entrepreneurs and Employers (ZPP) has launched a Contact Point for Entrepreneurs from Belarus, the purpose of which is to provide comprehensive organisational assistance to Belarusians interested in investing in Poland, including temporarily relocating their business. The project is a joint venture with the city of Łódź.

Support offered by ZPP includes, among others:

• providing information on the enterprise registration process and the regulatory environment for business in Poland;
• consultancy in the field of economic expansion, gaining local contacts and business partners;
• support in contacts with relevant public authorities;
• assistance in other areas, allowing investors to efficiently and safely develop their business in Poland.

The Union’s project is co-created with the Łódź City Hall known for creating favourable conditions for Belarusian companies to function normally and scale their business. Entrepreneurs deciding to grow their business in Łódź can count on the support of the Economic Development and International Cooperation Office. The representatives of the City of Łódź are focused on supporting entrepreneurs and overcoming barriers together. Importantly, the City of Łódź has experience in conducting effective onboarding of foreign investors and is characterised by a flexible and pro-entrepreneurial approach.

All entrepreneurs interested in finding more about business development opportunities in Poland are invited by the Union of Entrepreneurs and Employers to contact us at belarus@zpp.net.pl.

“We want to shape good standards of cooperation between the world of business and local governments. Communities will only benefit from it. Presently, due to domestic difficulties, Belarusian companies are in part transferring their operations to other countries. At the beginning, we focused on the IT sector as Łódź is a hotbed for companies from this sector, and IT companies from Belarus quite often have an international and global dimension. Three companies have already benefited from our assistance, and approximately 30 more have contacted us,” commented Marcin Nowacki, Vice President of the Union of Entrepreneurs and Employers.

During the joint conference inaugurating the project, Hanna Zdanowska, the Mayor of Łódź, welcomed Belarussians to Łódź:

“We invite the people of Belarus to Łódź. We invite Belarusian companies. Join us, work and live with us, be safe. Apart from the ZPP Contact Point, we also opened the Łódź Multicultural Centre in ul. Narutowicza 8/10. Foreigners living in Łódź will have the chance to receive psychological support or assistance in the event of violence or discrimination. It is also important that foreigners have the opportunity to benefit from the support of an individual assistant who speaks one of four languages: English, Ukrainian, Belarusian or Russian,” said Mayor Hanna Zdanowska. “Over the year to come, we will research and investigate what kind of problems foreigners have encounter in our city. Based on experiences from other cities, we know that these are often problems related to language or insufficiently comprehensible official forms. Legal consultations are also essential. Łódź has always been an open city and we cordially invite our new neighbours and fellow entrepreneurs. There is work in Łódź, decent costs of living, and a creative, interesting and positive atmosphere. Welcome to Łódź.”

Warsaw, July 16, 2021

 

ZPP’s comment on the proposal to establish a global CIT tax

 

The Union of Entrepreneurs and Employers is concerned that initiatives aimed at harmonizing tax regimes on a global scale might be detrimental
to the competitiveness of the Polish economy. Moreover, the proposals to establish a global minimum CIT tax are unlikely to solve the problem of tax base erosion
and the use of aggressive optimization mechanisms. Thus, we believe that a much more appropriate direction is to replace the corporate income tax with a low-rate sales tax.

On July 1, 2021, Poland, along with 129 other countries of the world, issued a joint statement on the willingness to develop new rules for taxing large international enterprises, including the taxation of Big Tech. As a result of over two years of work at the forum of the Organization for Economic Co-operation and Development (OECD), solutions are divided into the so-called two pillars.

The First Pillar consists of activities aimed at developing new rules concerning the place of income taxation and new rules for allocating income to individual countries in which the activity is carried out. On the other hand, the Second Pillar assumes the creationof a global minimum CIT tax. The minimum tax rate on the income
of multinational companies has been set at least 15 percent but may be increased as international negotiations progress on the implementation of Pillar Two.

In our view, the implementation of these initiatives will hit the competitiveness of the Polish economy.

Poland has one of the lowest effective CIT rates in the European Union, amounting to 15.3%. The chart below shows the inverse relationship between the inflow
of foreign direct investment and the amount of the effective corporate tax rate. In other words, international capital tends to migrate to jurisdictions with lower CIT rates.

 

Figure 1. Effective CIT rate and FDI flows

Source: own elaboration based on: OECD, Effective tax rate, online: Effective Tax Rates (oecd.org); OECD, FDI flows, online: Foreign direct investment (FDI) – FDI flows – OECD Data.

 

The inflow of foreign capital, referred to as Foreign Direct Investments (FDI), results in the transfer of technology to the country receiving capital, contributes to the development of the local labour market, and the integration of international trade. Moreover, it helps to create a more competitive business environment and accelerates the development of enterprises.

All the above-mentioned effects translate into higher economic growth, which is the most effective tool for reducing the economic distance between developed countries and developing countries, including Poland. It should be mentioned in this context that the so-called FDI played a key role in generating growth in the economies of the former socialist bloc. Countries such as Estonia, Poland, Czech Republic, and Slovenia, in the period of economic and political transformation, offered preferential CIT rates as an additional magnet to attract multinationals.

The proposed reform introducing the so-called global CIT will take away the so-called emerging countries their predominance in the form of preferential tax rates. Thus, the beneficiaries of the proposed solutions will be primarily the richest countries with an established position, which do not have to compete with the amount of tax burdens. The projected, additional tax revenues will mainly go to countries where international corporations eligible for the minimum CIT is their headquarters.
In addition to the direct fiscal effects of the global CIT agreement on national budgets, one should also bear in mind the indirect effects of global taxes, such as shifting the burden of additional liabilities onto employees of multinational corporations or consumers, or a decline in the profitability of international investments.

To sum up, the solution consisting in establishing a minimum rate of global CIT tax is an instrument favoring the most developed countries with a strong, established position in the global economic landscape. The adoption of the above rule will largely negatively affect the interests of small countries, or those whose economies have been based on free-market principles for just a few dozen years, and thus have not managed to develop an appropriate position on international markets.

Therefore, taking into account the above, we believe that Poland should retain the ability to compete in the tax system with other countries because as a motor of economic development.. Moreover, the introduction of the international tax regime will have a destructive effect on the domestic economy due to the decline in Foreign Direct Investments. It should be noted that along with capital from abroad, we also receive organizational culture and know-how, thanks to which our industry participates in the process of technological transformation, and is also an important element of global supply chains.

The ZPP emphasizes that the actions of states to limit tax avoidance and evasion must take a positive dimension to a greater extent, attracting taxpayers
and entrepreneurs not only with the amount of levies but also with the simplicity and transparency of the entire tax system. The occurrence of tax competition causes countries to strive to improve the quality of the adopted law or to develop tax mechanisms supporting entrepreneurship.

We believe that the shaping of tax policy should unconditionally remain the sovereign matter of each country, as only such an approach can reflect both the needs
and fiscal capacity of each country. On the other hand, the state of affairs in which there is natural competition between states as tax jurisdictions with varying degrees of attractiveness is a welcome phenomenon as it stimulates global economic growth.

Regardless of the above considerations, we point out that the proposals resulting from the project lasting more than two years, carried out as part of the OECD’s work, will probably not solve the most important problem, which is the erosion of the CIT tax base. Thus, the introduction of sales tax seems to be a much more effective solution, the more so as EU law does not contradict this idea.

 

See more: 16.07.2021 ZPP’s comment on the proposal to establish a global CIT tax

 

Fot. skitterphoto/pixabay.com

 

 

Warsaw, 13 July 2021

 

ZPP Commentary: EU’s climate goals come at a cost of deforestation

 

The Union of Entrepreneurs and Employers is alarming that the EU’s climate goals come at a come of deforestation while bringing little positive effect on greenhouse gas emissions. Ill-fitted policies and a focus on self-imposed targets rather than actual impact are primary reasons why this is happening. Given the costs related to the European Green Deal as well as the importance of achieving climate neutrality, we urge the European Commission to put limits to the use of bioenergy as renewable energy in the upcoming RED II revision.

Tomorrow, on July 14, the European Commission (‘Commission’) is expected to publish the ‘Fit for 55’ legislative package implementing the European Green Deal and ambitious goal to reduce its greenhouse gas emissions by at least 55 per cent by 2030. The package will include many long-awaited proposals, including the revision of the Emissions Trading Scheme (‘ETS’) and the project of carbon border adjustment mechanism.

Among other controversial policies, there is also a revision of the Renewable Energy Directive (‘RED’). First published in 2009, the Renewable Energy Directive classified bioenergy (i.e. biodiesel and biomass) as climate-friendly and obliged member states to achieve a 10 per cent renewable energy share in the final transport energy consumption (RES-T) by 2020. In 2018, a recast of RED (so-called RED II) was adopted, closing some legal loopholes and increasing the target to 14 per cent. The current revision of RED II is expected to increase the goal to 24 per cent RES-T, showing the growing reliance on bioenergy.

The role of biomass is especially important from the perspective of the Member States, which are obliged to reach climate goals. Since the evidence on the negative side-effects of increased reliance on bioenergy is growing, an idea of striking biomass and biodiesel of the renewables list has been gaining support. In response to the idea, ministers from 10 Member States have signed a letter where they urge the Commission to declare all forms of solid, gaseous and liquid bioenergy as ‘long-term sustainable energy sources’ given their ‘crucial role of bioenergy in the Member States’ energy mix to reach the EU climate goals’.[1]This letter shows that the pressure to achieve administratively set targets is so big, that the Member States are eager to overlook the negative impact on the climate of the bioenergy.[2] And the case against sustained use of bioenergy keeps growing. Below we enumerate two key arguments against it.

First, burning biofuels are responsible for more GHG than fossil fuels. On the one hand, fossil fuels such as gas and coal have higher energy density than wood pellets or biodiesel, hence it’s necessary to burn more fuel per energy unit. On the other hand, there is an issue of indirect land-use change (ILUC), namely cutting down trees (the carbon dioxide absorbent factor) in order to plant palm and soy, needed for biofuels, or worse to use it as pellets.[3]

The Commission has conducted two studies, which quantified the land-use related emissions of biofuels. They found that when ILUC was accounted for, all vegetable oil-based biodiesel had more emissions than fossil fuel. Interestingly, the more recent of the two studies have found that palm and soy oil have three and two times more emissions than fossil diesel respectively.[4] Hence, when we account for ILUC the situation looks rather grim. Since 2011 39 Mt of palm and soy biodiesel have been used, emitting 381 Mt CO2eq – 245 Mt more than the same amount of fossil diesel. If nothing changes, in the next 10 years the EU will emit 174 Mt of CO2eq more than the conventional diesel emissions. This is equivalent to the emissions of 95 million extra cars on the road.

Second, the sustained use of biofuels leads to massive and unsustainable land conversions. A study by Transport & Environment has found that the EU’s demand for soy and palm required 4 million hectares of land, while the demand for palm oil alone required conversion of 1.1 million hectares of mature land in Southeast Asian countries into new palm plantations. According to Euractiv, the deforested area corresponds to the size of the Netherlands. To make the matters worse, the forests that were converted are the habitat of the remaining orangutan population. T&E estimate that the EU’s increased demand for palm oil diesel is responsible for the destruction of 10% of the world’s remaining orangutan habitats. A further increase to 24 per cent renewable energy share in transport can double the deforested area. It is clear that such a strategy is contrary to the EU’s Biodiversity Strategy.

To sum up, the EU’s increased use of biofuels led to numerous negative consequences for the environment: increased GHG emissions, equivalent to emissions of 95 million cars, deforestation of the size equivalent to the area of the Netherlands and the destruction of 10 per cent of remaining orangutan habitats. Nevertheless, in theory, the EU’s is meeting its’ climate targets, since biofuels have been classified as ‘green’. Given the tremendous costs related to the implementation of the Green Deal as well as the importance of climate protection, we urge the Commission to look beyond its targets and take into consideration wider and real implications of its policies. In our opinion, the use of bioenergy should be limited within the framework of the upcoming RED II revision in order to avoid further negative effects on the environment.

 

[1] Among signatories there were countries who greatly depend on wood in their energy mix, such as Sweden, Finland and Estonia, but also Visegrad countries, including Poland.

[2] The same point can be seen in the demand for biofuels during the Covid-19 crisis. Despite the record low demand for energy, the volume of biofuels used by EU transport sector did not decrease, while in some countries like Germany or Italy it has even increased. This can be best explained by reference to the EU transport targets under the RED as well as Fuel Quality Directive for 2020.

[3] The EU rules officially prohibit cutting down trees to source pellets, and allow only for wood residue to be used for purposes of biomass, while environmental protection activities claim that it is a standard practice.

[4] The issue was to a certain extent addressed by RED II, which classified palm oil as high ILUC risk and introduced a phase out by 2030. Nevertheless, the problem was not solved completely since other crop based feedstock, including soy, and biomass is still allowed. Keeping in mind the potential increase to 24 per cent RES-T, unsustainable use of land, deforestation and biodiversity loss is very likely to occur.

Sources:

https://www.government.se/493efb/contentassets/764497619c0d4dda9c433db8c0d6ab5b/ministers-letter-on-bioenergy-in-taxonomy

https://www.transportenvironment.org/sites/te/files/publications/Biofuels%20briefing%20072021.pdf

https://www.ft.com/content/c3b00115-562e-4d06-bd11-f46a3f9366b1

https://www.euractiv.com/section/transport/news/eu-biofuels-goals-seen-behind-deforested-area-as-big-as-the-netherlands/

 

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