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, 21^st October 2021

Opinion of the Chief Expert of the Union of Entrepreneurs and Employers on digital economy
regarding the Personal Information Protection Law

The Personal Information Protection Law (PIPL), the Chinese equivalent of the European General Data Protection Regulation (GDPR), will enter into force at the beginning of November this year. While it resembles the GDPR in many ways, there are also a number of significant differences proving the goals of the Chinese law are broader than mere protection of personal data.

PIPL regulates how personal data is collected and processed by companies. Both GDPR and PIPL similarly define such basic notions as “personal data” or “personal data processing”. Following its enforcement, data processing will only be allowed if it has a clear and legitimate purpose and is limited to the “minimum extent necessary to achieve the purposes of data processing”, and the user will have to consent to their processing. This consent may be withdrawn at any time, and companies will not be entitled to refuse to render services solely on this basis. Contrary to the GDPR, PIPL does not mention any legitimate interests of the administrator, yet it states that data may be collected without consent in certain cases, such as compliance with an obligation imposed by law or to the extent necessary to perform the contract concluded with the user etc.

Both GDPR and PIPL are applied in an extraterritorial fashion, which means both acts apply to the processing of personal data that takes place outside the borders of the EU and China, respectively. However, the scope of the extraterritorial application of PIPL is wider than in the case of GDPR. When determining the territorial scope of the GDPR, it is necessary to take into account the geographic location of the administrator or the processing party, and more specifically, whether it is based in the EU or conducts business activities in the EU. Running a business in the EU can be determined by offering services in one any of the member states. The availability of a website or the use of a language that is also a widely spoken language in a third-party country are not sufficient indicators. On the other hand, enabling an order in the currency of one of the member states may be enough.

Meanwhile, PIPL will apply to the processing of personal data outside of China, provided that the purpose of the processing is to provide products or services to individuals in China or to “analyse” the behaviour of individuals in China. Other objectives can be added by regulation. This shows that PIPL is “casting a much bigger net” than the GDPR.

Due to PIPL, foreign entities will be required to establish a branch or representative office in China for purposes related to data protection and control together with the Chinese authorities. This requirement largely reflects a non-EU entity representative known from GDPR.

The new provisions will also introduce restrictions on the cross-border transfer of personal data. Some provisions resemble those of the GDPR, but PIPL also includes a number of additional requirements, especially if the data exporter is an operator of a critical IT infrastructure or is processing a volume of personal data that requires permission from the Cyberspace Administration of China (CAC).

Firstly, a data controller planning to transfer personal data to entities outside of China is required to:

• obtain separate consent from users;
• take the necessary measures to guarantee that foreign recipients of data can ensure the level of protection required by PIPL;
• carry out an impact assessment on the protection of personal data.

Second, critical infrastructure operators or large data processors will need to store personal data locally. Should a transfer of data abroad become a necessity, the controller will have to undergo a security audit conducted by the CAC. These provisions will give the Chinese regulator wide opportunities to interfere in the business practices of companies and defend Chinese public interests.

Ultimately, the PIPL gives China the opportunity to take countermeasures against countries that have:

• acted in a way that discriminates against China in the protection of personal information;
• violated the interests of Chinese citizens whose data were processed;
• violated China’s national security and public interest.

To sum up, PIPL, following the example of GDPR, sets high standards of personal data protection. On the one hand, one could say that it is testament to the normative power of the EU in international relations and achieves one of the strategic goals of the European Commission to export EU standards. However, if we take consider the fact that PIPL, unlike the GDPR, will increase the control of the central state apparatus over the economy and strengthen China’s international position against foreign entities, we will see that these high standards are used against the EU itself. This is primarily due to the fact that PIPL will cover foreign companies to a much greater extent than GDPR, and will limit cross-border data transfer. Ultimately, PIPL shows how, in an increasingly data-driven economy, the regulation of cyberspace is becoming a new arena for geopolitics.

 

Kamila Sotomska
Chief Expert of the Union of Entrepreneurs and Employers on digital economy

 

See more: 21.10.2021 Opinion of the Chief Expert of the Union of Entrepreneurs and Employers on digital economy regarding the Personal Information Protection Law

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”

***

[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, 26^th October 2021

 

Position of the Union of Entrepreneurs and Employers on the ‘Fit for 55’ package

 

While the Union of Entrepreneurs and Employers does not question the necessity to care of the climate and the natural environment, the measures to be taken to that end should be of a sustainable nature and should therefore also take its socio-economic aspects into account.

In our view, the draft documents and legal acts constituting the ‘Fit for 55’ package presented for consultation are an expression of a purely ideological approach to combating climate change. The instruments and solutions provided for in them fail to guarantee the achievement of set goals. However, a tangible effect of their enforcement may be the impoverishment of European society and a reduction in competitiveness of the EU economy.

In the context of works undertaken to develop a European climate policy, the current state of the European energy system should also be taken into account, which is characterised by high instability and excessive dependence on third-party countries. Unfortunately, in the presented documents, we cannot find the balance between striving for a zero-emission economy and ensuring energy security for the entire EU.

The ‘Fit for 55’ package[1] is a set of interconnected proposals which together aim to ensure the implementation of the ambitious EU climate policy. The amendments proposed in the package cover not only the areas of climate and energy, but also such sectors as fuel, electricity, heavy industry, road transport, real estate, land use and forestry. Their main goal is to reduce greenhouse gas emissions by 55% by 2030, in comparison to levels from 1990, and climate neutrality by 2050.

It is the belief of the Union of Entrepreneurs and Employers that the prepared strategy is excessively optimistic concerning the opportunities that the planned energy transformation may bring, and it disregards the considerable risks that arise due to the implementation of such radical reforms.

One should consider that the implementation of the instruments included in ‘Fit for 55’ (a significant part of which are of a fiscal or para-tax nature) will result in the loss of competitiveness of the European economy and thus a widespread impoverishment of EU citizens.

The introduction of such significant reforms without prior appropriate macroeconomic analyses that would take into account the impact of the ‘Fit for 55’ package on the economy of the entire EU as well as individual member states in the period up to 2030 and beyond can be viewed as slightly lacking vision. The presented documents also overlook the estimated social and economic impact, although it is obvious that the strategy being implemented will bring about significant economic changes for the EU population and enterprises.

The European Emissions Trading System (EU ETS)[2] – a speculative instrument to negatively impact other sectors of the economy

The EU ETS obliges issuers to obtain and redeem allowances to emit carbon dioxide (EU allowances, or EUA). Therefore, emission allowances are necessary for EUA installations to be able to conduct economic activity in their industry. These are, for example, combined heat and power plants that burn emission fuels.

The free pool of allowances that can be used by selected enterprises operating under the EUA system does not cover the entire market demand. For this reason, the system allows for secondary transactions whereby installations with a surplus of allowances can sell them to the party with a shortage, which is unable for various reasons to reduce emissions to the necessary minimum.

The nature of the CO₂ emission trading system allows investors to join the transactions. They form the secondary group of EUA buyers. One should keep in mind that investors do not require an operating licence and thus allowances become one of the many products available on European financial markets. Investors are interested in purchase of instruments solely in order to gain profit (from arbitration, derived from price differences, or speculative on exchange rate differences) or, alternatively, to hedge themselves against unfavourable price changes. Such an emissions trading system leads to the formation of bubbles, increasing EUA prices. This, in turn, leads to the fact that companies emitting greenhouse gases incur increasingly higher costs for obtaining allowances, instead of allocating these funds to activities and investments reducing CO₂ emissions.

Following the above-mentioned reasons, the Union of Entrepreneurs and Employers negatively evaluates the functioning of the ETS system whose actual impact on reducing CO₂ emissions remains limited. Therefore, we are equally critical of the proposed amendments to include maritime economy, road transport and real estate in this system.

CBAM[3] – protectionism may backfire on the EU

The introduction of the Carbon Border Adjustment Mechanism (CBAM) at EU borders will in fact establish an additional customs duty on the import of certain goods. Such a solution will certainly be negatively perceived by the Union’s trading partners, who, in order to “maintain a sense of symmetry”, may decide to introduce retaliatory tariffs. Therefore, in our view, the introduction of a carbon tax would result, among other things, in an increase in domestic production costs due to the increase in the prices of imported semi-finished goods. On the other hand, retaliatory duties imposed by other countries would significantly weaken the position of EU exporters.

Moreover, apart from negative economic effects, CBAM may be of little benefit to the climate. While the European Commission claims CBAM will cut greenhouse gas emissions by 1%, the Cambridge Institute for Sustainability in its recent analysis estimated its impact at merely 0.023%[4].

Conclusions

The Union of Entrepreneurs and Employers in indeed aware of the necessity to act for the climate and the environment. We believe, however, that the European climate policy is ill-designed, as it only sets ambitious goals, and does not provide for effective ways to achieve them. Instruments that are intended to help take care of the environment are as a matter of fact short-sighted in their nature. In short term, they are likely to have a quick albeit non-lasting effect, yet in the long run they will prove devastating for the European economy and therefore for the entire Community.

For this reason, we are in favour prudent and reliable measures to achieve low-carbon emissions in the European Union. We oppose any and all actions that may cause harm to the competitiveness of European enterprises, as well as the widespread impoverishment. Consequently, we ought to ensure that reforms do not generate the risk of increasing poverty in terms of energy and mobility. In our view, the EU should, on the one hand, guarantee appropriate support mechanisms and a fair transformation of the fossil-fuel mining and energy sectors, and, on the other hand, should not limit investment opportunities, for example with the use of transition fuels, which significantly help to maintain the energy security of individual member states.

The current climate policy is to a large extent a set of penalties, restrictions and taxes. More emphasis ought to be placed on positive measures that will encourage CO₂ emitters to invest and modernise. Deregulatory and entrepreneurial initiatives are what is needed to help Europe return to the global economic elite.

There can be no doubt that the EU could take more effective pro-ecological actions, while at the same time having a greater impact on shaping climate policies in third-party countries.

Find out more: 26.10.2021 Position of the Union of Entrepreneurs and Employers on the ‘Fit for 55’ package

***

[1] Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions ‘Fit for 55’: delivering the EU’s 2030 Climate Target on the way to climate neutrality (COM (2021) 550 final).

[2] Directive of the European Parliament and of the Council amending Directive 2003/87/EC establishing a system for greenhouse gas emission allowance trading within the Union, Decision (EU) 2015/1814 concerning the establishment and operation of a market stability reserve for the Union greenhouse gas emission trading scheme and Regulation (EU) 2015/757.

[3] Regulation of the European Parliament and of the Council establishing a carbon border adjustment mechanism.

[4] https://www.cisl.cam.ac.uk/files/cbam_report.pdf

Warsaw, 28^th October 2021

 

Union of Entrepreneurs and Employers with the largest social media reach
among Polish business organisations

 

We are pleased to inform you that, in the period from January to September 2021, the Union of Entrepreneurs and Employers was the most visible entrepreneurs’ organisation in social media according to an independent media monitoring centre. Over these 9 months, the Union managed to generate almost twice the range of publications than its largest competitor. At the same time, Cezary Kaźmierczak, President of the Union, achieved by far the largest reach in social media among Polish business organisation leaders, achieving results almost seven times better than the runner up in the ranking.

Source: Newspoint Monitoring Mediów (combined total reach for Facebook, Twitter and LinkedIn – January-September 2021)

The Union vs the Competition – January-September 2021 (estimated reach):

C. Kaźmierczak (President of the Union vs other Business Leaders – January-September 2021 (estimated reach):

Thank you for your trust. Follow us on social media:

• Facebook
• Twitter
• LinkedIn

Positions, memoranda, reports and opinions of our experts on the most important economic issues, as well as up-to-date information on initiatives undertaken by Union are published online on an ongoing basis.

 

About the Union

Established in 2010, the Union of Entrepreneurs and Employers is the fastest growing and most active organisation of entrepreneurs in Poland. Its members include over 52,000 companies, 16 regional and 21 industry organisations. Every year, the Union publishes more than 30 reports, studies, vidos and over 100 legislative commentaries, positions, and opinions. It organises numerous debates and meetings. The goal of the Union of Entrepreneurs and Employers is to change Poland into a country with optimal business conditions and the best tax system in Europe. The Union is an apolitical organisation supporting the free market and common sense, regardless of political divides. The Union is a founding member of the Social Dialogue Council and has an EU representative office in Brussels.

Warsaw, 20^th October 2021

 

While we must defend our borders, we need immigration for settlement, not Gastarbeiter

 

The key conclusion from a new report published by the Union of Entrepreneurs and Employers today: the Polish policy on immigration ought to be based on a quota system and should provide for an easy path to obtain permanent residence and legal employment.

Experts of the Union of Entrepreneurs and Employers have long drawn attention to the fact that Poland is in need of a reasonable immigration policy, that is it not just a temporary necessity.

“As a result of a low total fertility rate, we are now facing a rather serious demographic problem, which affects the situation on the labour market, whereas in the long run, it will impact almost every aspect of the functioning of the state,” comments Cezary Kaźmierczak, President of the Union of Entrepreneurs and Employers. “To maintain our current economic growth, we simply have to accept the fact that we need immigrants.”

As the Union’s experts indicate in their report, problems related to demographics are the root of numerous short- and long-term challenges. The former are mainly related to workforce shortages in several sectors of the economy, while the latter are much more complex and are related, amongst others, to increasing burdens on the Social Insurance Fund or the healthcare system.

Unfortunately, the Polish immigration policy currently solely responds, and not in a fully effective manner, to the former. Its structural weakness is the consistent adherence to a model based on fast-rotating and short-term immigration.

“One could say that the model of immigration policy adopted in Poland is of a Gastarbeiter character,” continues Cezary Kaźmierczak. “Immigrants come for a short time, work hard and are then forced to go back to their country of origin. They have no serious connection to Poland. A couple of Western European countries had made that mistake, and we are, unfortunately, not learning from it.”

The system described above fails to meet the needs of employers and employees alike. The former group is looking for employees for a longer period, as they want to ensure the stability and continuity of their business operations. The other, in turn, often declares the willingness to leave their country for good, ergo they need a state with predictable and foreigner-friendly settlement procedures.

“Despite the fact that professional activity of immigrants in Poland remains one of the highest in the European Union, our adopted model of immigration is not up to date with society’s needs,” claims Jakub Bińkowski, Member of the Board of the Union and Head of the Law and Legislation Department. “Immigration is a value the state should not underestimate. Meanwhile, existing regulations are definitely in favour of fast-rotating immigration, which – while it does temporarily fill the gaps in labour supply – is not the answer to our development challenges in the long run.”

In their report, the Union’s experts indicated desired changes for the better in public policy. Above all else, the system should give preference to settlement and family immigration, enabling the acquisition of citizenship in the long term. A white and red card, highlighting Poland’s national colour, should serve as a physical confirmation of obtaining a long-term residence permit as well as legal employment. It should be issued for a period of 3 years at first and later, under certain conditions, should be extended indefinitely. To maintain control over the immigration process, the government should make a political decision regarding the number of immigrants from each country that the state will be able to accept over a given period.

“It goes without saying that we need immigrants,” concludes Cezary Kaźmierczak. “However, we must draw a line between legal and illegal immigration. We have a firm position on the latter – we have to make use of the experience of others and put to use a wide range of instruments: from physical barriers in the form of walls, through deportations of illegal immigrants to their country of origin, to a lifetime ban on re-entry to the Republic of Poland.”

 

Find out more: 20.10.2021 Report by the Union of Entrepreneurs and Employers: Poland’s migration policy – necessary directions of changes

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

Warsaw, 20^th September 2021

 

Position of the Union of Entrepreneurs and Employers on the draft act implementing the system of Extended Producer Responsibility

 

The draft act amending the act on the management of packaging and packaging waste and certain other acts presented by the Ministry of Climate and Environment contains solutions that give shape to the Extended Producer Responsibility (EPR) system to be implemented in Poland.

The obligation to implement solutions in the field of EPR, following the adoption of EU directives, aims to achieve specific environmental goals, including these in terms of recycling levels achieved for individual waste fractions. However, to achieve individual goals, it is essential to develop a measured and effective Extended Producer Responsibility scheme.

The Union of Entrepreneurs and Employers observes with concern that the EPR scheme provided for by the Ministry of Climate and Environment will not bring the desired results in terms of achieving environmental goals stemming from the ideas of circular economy or related to the European Green Deal. The sole effect of implementing EPR in the form presented in the draft act will be the increase in the burden on producers (by introducing a packaging tax), and as a result – another increase in prices.

In our view, the presented draft act in its current wording is not suitable for further proceedings. We call for the draft to be rewritten from scratch in the spirit of care for the environment and with the effectiveness of the system in mind; not to supply the public finance sector with additional revenue.

In connection to the above, the Union of Entrepreneurs and Employers shares a number of comments to the current project, as well as proposals for the future, which will allow to design an optimal EPR scheme that meets the goals and needs of all stakeholders. One should also remember that the final beneficiaries of the system must be citizens and the natural environment.

I. Para-tax character of the proposed EPR scheme

Under the government’s proposal for the EPR system, entrepreneurs producing packaged goods (producers/manufactures) are to be reduced to the role of passive payers who have no real influence on the shape and efficiency of the system. However, this will not entail relieving entrepreneurs of responsibility for the system’s efficiency. A complete separation of responsibility for the result from the possibility of influencing the way the system works is obviously not in line with the basic assumptions of the Waste Directive.

The draft act does not even guarantee the correct application of the net cost principle, i.e. the solution provided for in the Directive (Art. 8a sec. 4  (a), first indent) that would allow the inclusion of the revenues obtained from the sale of the raw material collected by the system in introductory fees. It is an important mechanism that allows for fair settlement of costs incurred by entrepreneurs.

The above framework means that the designed EPR scheme has a para-tax character. Entrepreneurs will be charged with another public levy, which – as the legislator admitted in the explanatory memorandum – will be passed on to consumers.

Apart from the reservations to the cost and organisational effectiveness of the implemented solution, it is necessary to point out a factor important from the consumers’ point of view, which is the increase in the prices of packaged goods. Already now, Poland is one of the European leaders in terms of inflation. The introduction of EPR in the proposed shape will lead to an increase in prices of basic necessities such as food, hygiene products and cleaning products to name a few.

In the opinion of the Union of Entrepreneurs and Employers, in order to implement an optimal EPR scheme, it is necessary to take into account the demands of producers who have declared their willingness to actually participate in the waste management system, thus having a real impact on activities increasing the volume and quality of collected waste. We believe that the EPR system should maximise the synergy between the actions of individual system participants, therefore producers should be allowed to become really involved in the system’s operations.

II. Producers’ responsibility for insufficient recycling levels

To begin with, it should be noted that the draft act is imprecise and does not specifically name the party to be responsible for recycling packaging waste from households.

Importantly, as has been mentioned earlier, regardless of which group of entities will actually recycle waste, in the event of failure to achieve the assumed levels – producers will be financially liable and will have to incur a product fee. This leads to an irrational situation in which entrepreneurs, without any organisational responsibility for the recycling process – will be held accountable for results beyond their control.

In the scheme being implemented, producers are required to pay a packaging fee, and the revenues from this fee ensure the efficient functioning of the EPR system as well as the achievement of specific recycling levels. The product fee will be a punishment against entrepreneurs for ineffective activities of municipalities in the field of waste management. We believe that the responsibility of producers for achieving recycling rates, formulated in this way, is unacceptable.

It is worth emphasising that the constraint to pay the product fee by entrepreneurs is highly probable due to the fact that the draft act does not provide for any tools aimed at increasing the volume and quality of packaging waste collected by municipalities. For this reason, and also due to the lack of financial liability of municipalities for failing to achieve recycling rates, local governments may not be sufficiently motivated to organise efficient waste management systems. In practice, situations may take place where the financial costs borne by the introductory entities (including the packaging fee and the product fee) exceed the costs of packaging waste management, which in itself is contrary to the Waste Framework Directive.

III. Division of packaging waste streams

The draft act divides packaging waste into two streams: waste from packaging intended for households and waste from other packaging (including that generated by trade or services and industrial). This distinction is important, because it determines the obligations (in the field of packaging waste management of this type) of the entity introducing products in packaging intended for households, primarily in the scope of paying the packaging fee in the case of independent fulfilment of these obligations.

In the proposed act, packaging intended for households is defined as the packaging in which a product is placed on the market for use in households and other places where similar products in packaging are used. It seems that the proposed definition is so general that it makes it impossible to clearly determine how to define and distinguish packaging intended for households from others, coming from trade, distribution or industry.

We assume that the authors of the draft act decided to introduce such a distinction from specific recitals of the directive, because the proposed solution is not required by Art. 8a of the Framework Directive and thus constitutes an over-regulation on the part of the Polish Ministry. However, it should be noted that neither the explanatory memorandum to the draft nor the Regulatory Impact Assessment indicate how the above-mentioned distinction of waste streams would contribute to a better functioning of the EPR system.

The Union of Entrepreneurs and Employers fails to see sufficient reasons as to why the introduction of such a solution would be justified. In our view, leaving this provision in its current wording may lead to significant interpretation uncertainty, in particular with regard to introducing products in packaging that can be used by households, trade, services or industry alike.

Furthermore, the separation of waste streams may adversely affect the situation of entities introducing small amounts of products, mostly small and medium-sized enterprises. This, however, is in contradiction with Art. 8a sec. 1(d) of the Framework Directive, therefore we call for the removal of the separation of waste streams from the draft act.

IV. Allocation of the revenues from the packaging fee

The provisions regulating the allocation of revenue from the packaging fee also indicate the para-tax nature of the proposed EPR scheme. According to the contents of the draft act, as much as 80% of the proceeds from the packaging fee will be transferred to communes or associations of communes. However, according to Art. 3 sec. 4 point 12 of the project, local governments will be able to allocate the funds received to cover the costs of receiving, transport and collection of municipal waste referred to in Art. 1. 6r sec. 2 point 1 of the Act on maintaining cleanliness and order in municipalities of 13^th September 1996.

The provision formulated in this fashion means that communes and associations of communes will be able to allocate the funds received not only to the management of packaging waste covered by the EPR system, but also to the management of all other municipal waste. Moreover, the draft act does not provide for any tools allowing for reporting of costs. Thus, post-factum determining what part of the funds was spent on the actual management of packaging waste covered by the EPR system may be very difficult in practice.

In the opinion of the Union of Entrepreneurs and Employers, the proposed regulation ought to introduce a restriction according to which local governments may allocate funds obtained from the packaging fee to the management of waste covered by the EPR system only. It feels unjustified to lead to a situation in which entrepreneurs finance the entire waste management system, including municipal waste. The lack of a link between the expenditure of funds obtained from the packaging fee and the real costs of packaging waste management absolutely violates Art. 8a sec. 4(a) of the Framework Directive.

V. Distribution of funds from the packaging fee between communes

As indicated in chapter IV of this document, the presented EPR scheme seems to be an extremely beneficial solution for municipalities (and their associations), as the revenues from the packaging fee will be a significant financial relief for local government finances.

In practice, however, it may turn out that some communes – at the expense of others – will receive funds disproportionate to their waste management needs. The above may occur due to unclear criteria for the allocation of funds obtained from the packaging fee.

The funds from the packaging fee are to be distributed among communes based on two criteria: the share of municipal waste prepared to be reused or recycled and the population index. These criteria will have different weights: 60% and 40% respectively.

It should also be noted that the criterion for municipal waste prepared for reuse and recycling has not been limited to packaging waste. Moreover, the indicator regarding the number of inhabitants is not sufficiently precise, as it does not indicate a specific source from which such data can be obtained or updated in subsequent years.

Designed this way, the system of dividing the packaging fee does not guarantee that communes will receive adequate funds for the execution of tasks related to waste management. The disbursement of funds is to be made on the basis of said criteria, but it is not known how the result obtained after calculating these indicators is to be used for the disbursement of the funds. Basing on the proposed regulations, it will therefore be possible to arbitrarily allocate funds to communes, also in an amount that does not correspond to the actual costs of providing services in the field of packaging waste management, which raises considerable reservations on the part of both communes and producers.

VI. Definition of packaged products’ introducer

The draft act introduces changes to the definition of “party placing packaged products on the market” by specifying the conditions for recognising retail enterprises introducing products in packaging. Such explanation is, however, insufficient and does not eliminate the uncertainty arising from the application of the amended provisions.

The act should also take into account different business models adopted by entrepreneurs, in which the producer is distinguished from the entity dealing with distribution. This applies, among others, to a wide range of companies operating in logistics, transport and e-commerce – all of which are developing sectors in Poland. Under the current regulations, qualifying the liability of a given entity is very difficult, as the definitions of the entity introducing products in packaging and placing them on the market are broad in scope, which prevents an unequivocal determination of the liability of a given entity.

Moreover, in our view, the proposed amendment ignores an important aspect of the functioning of entrepreneurs with regard to franchises implementing systemic solutions in line with circular or other pro-ecological initiatives. Groups of entrepreneurs associated in such networks, operating under the leadership and with the leading role of licensors (franchise operators), since they function within one economic organism which is similar to a corporation, should be able to jointly meet the criteria set out by the act in relation to obtaining the required levels of waste recycling, the content of recycled materials, possibility of separate collection and keeping a common system of records.

VII. Fee collection for processed waste in a circular economy

The definition of packaging intended for households does not distinguish between waste going to the enterprise’s circular economy management system that is to be recycled. While the intention of the legislator to impose a packaging fee on those placing products in packaging on the market in connection with the introduction of waste to municipal waste management systems is understandable, charging this fee for waste processed under the circular economy, which is a system much more efficient than municipal systems, is unjustified and contradictory with the directions of development established, for example, by Roadmap for transformation towards a circular economy, a resolution of the Council of Ministers of the Republic of Poland of 10^th September 2019, which assumes the implementation of a support system for enterprises whose business models operate in line with circular economy.

In relation to the above, Art. 18a of the draft act should be modified so that the method of calculating the due packaging fee takes into account the volume of waste recovered by the entity introducing products in packaging and recycled under circular economy, the volume of which should reduce the volume per which the fee is due.

VIII. Determining minimum remuneration for producer responsibility organisations in the form of a notice

Pursuant to the contents of the draft act, the remuneration that is due to producer responsibility organisations (PROs) for the execution of introductory obligations is to be specified in an agreement concluded between the PRO and the introducing party. The rates of remuneration resulting from the concluded contracts may not, however, be lower than the rates established by the minister responsible for climate and announced in the Public Information Bulletin. As is clear from the explanatory memorandum to the draft act: the minister will announce the minimum rates of remuneration in the form of a notice.

We must emphasise that announcing the minimum amount of remuneration for PROs in the form of a notice will constitute a violation of Art. 87 sec. 1 of the Constitution of the Republic of Poland. This provision contains a closed catalogue of sources of universally binding law, without mentioning a notice as a universally binding source of law. Therefore, the notice may not introduce norms of a general or abstract nature that would regulate the legal situation of an indefinite number of addressees.

Furthermore, the draft act does not indicate any range of amounts to be applied when establishing the minimum rates of remuneration. There is also no indication at all of any algorithm that the minister would use when setting these rates.

With this in mind, we ask for the minimum rates referred to above to be regulated at least by way of an ordinance or ministerial regulation, which would constitute an appendix to the proposed act. On the other hand, the act should contain (apart from the delegation to issue a regulation) a range of amounts or an algorithm that would be used to determine the minimum rates. It should be noted that it is impossible to comprehensively analyse the implemented EPR scheme without such important data as remuneration, which affects the costs of producers’ operations.

IX. Exclusion from the definition of hazardous substances

Art. 8 point 14(b) in the draft act is an important regulation, which is, however, limited to only one group of products. This provision excludes detergents from the definition of hazardous substances, and only them. At the same time, this exclusion does not cover a number of consumer packaging for non-detergents, such as air fresheners, repellents, disinfectants etc., which, when empty, do not pose a threat to the environment. We draw your attention to the fact that the composition of this type of products does not include substances classified as toxic or carcinogenic. Empty packaging ends up in the appropriate municipal waste streams, and the tiny leftover amounts of their contents do not have a more significant impact on the environment than the leftovers of other product categories. Moreover, it seems that the creation of an additional category of hazardous substances in relation to packaging waste is unjustified. The methods of dealing with waste which, due to its properties, create various types of hazards are described in separate regulations.

X. Problems with the application of the Act resulting from the adopted vacatio legis

Due to the construction of the draft act, the regulations it introduces are impossible to implement. The act is to enter into force on 1^st January 2023, so the first packaging fee is to be paid by entrepreneurs introducing products in packaging intended for households by 15^th February 2023. However, the rates of this fee must first be determined by a regulation that may not be issued on the basis of an act that has not yet entered into force, that is prior to 1^st January 2023. Furthermore, the issuance of such a regulation requires a positive opinion of the council advising the minister competent for climate matters. This council also cannot be appointed before 1^st January 2023, that is before the act enters into force. This construction of the draft act means that: either the minister will issue a regulation on the rates of the packaging fee on the basis of an act that is not yet in force or will issue it without consulting the council, or entrepreneurs will not pay the first packaging fee by 15^th February 2023 as the regulation will not yet be issued (full legislative path) and the rates will not yet be accepted by the council.

Summary

Taking into account the commentary collected above, we believe that the draft act in the presented form is not entirely suitable for further proceedings. The prepared amendment contains numerous fallacies of a structural and systemic nature. As a result, the implementation of the EPR scheme in the shape proposed will not only fail to contribute to the achievement of environmental goals, but will also increase the costs of producers’ operations, which will directly translate into increased prices of basic products.

Importantly, the draft is inconsistent with the basic assumptions of the directive. It seems rather difficult to expect a correct implementation of Art. 8a of the Waste Directive. Thus, the enforcement of the act in its present wording will sooner or later result in the necessity to amend it, which will result in even greater legislative chaos and regulatory uncertainty among domestic and international enterprises.

Therefore, it is necessary to ensure that the implemented EPR scheme meets the needs of all stakeholders of the system, which can be achieved thanks to an even distribution of workloads and powers with regard to all stakeholders. It is also necessary to get rid of the para-tax aspects of the implemented system. As of now producers are treated only as payers of a new public levy.

To sum up, the Union of Entrepreneurs and Employers appeals that works are commenced on a new EPR scheme, the framework of which and key solutions included in it will be developed in cooperation with all stakeholders involved in the system to be implemented.

 

See more: 20.09.2021 Position of the Union of Entrepreneurs and Employers on the draft act implementing the system of Extended Producer Responsibility

Warsaw, 13^th October 2021

 

Opinion of the Chief Economist of the Union of Entrepreneurs and Employers:
What’s coming up next with inflation?

 

The stress related to waiting for the next inflation readings has slightly eased. The Monetary Policy Council contributed to this state of affairs with their rather decisive, albeit delayed, decision to raise interest rates. This move resulted to some extent in restored credibility of the National Bank of Poland. Inflation readings in several countries of our region played an important role here: over the last month, they quite clearly exceeded inflation in Poland, thus signalling that it was not only a local problem. However, the risk of inflation remaining at least at the present level, or an even higher one, has not yet disappeared.

At the moment, a number of regulatory factors in Poland have a significant impact on the level of inflation. These include the so-called sectoral taxes (such as the sugar tax, the planned increase of excise duties etc.), rapid wage growth, post-COVID fiscal expansion, and persistently low real interest rates encouraging ill-considered and rash investments (for instance, on the housing market). However, it seems that what impacts the level of inflation to an even higher degree (and its ubiquity in Europe too) are factors of a supra-national nature, both those of a regulatory character and those resulting from the imbalance between supply and demand.

Inflation in Europe is driven in particular by rapidly rising prices of energy and energy resources. The prices of electricity, thermal coal and natural gas in Western European markets have reached very high levels. The reasons for such a state of affairs are twofold: the unrelenting imbalance on global markets (influenced by demand in Asia, increased for various reasons) and the European climate policy (both already in force and planned). Due to the market imbalance on a global scale, it is difficult to expect a lasting decline in gas and coal prices in the coming months (although some count on the Russian Federation to enforce a favourable policy on its natural gas which will flood Europe after Nord Stream 2 is put into use).

Quite surprisingly, Poland found itself in a fairly good situation. Both the size of conventional coal-based energy and long-term contracts for coal supplies from Polish mines that were concluded some time ago helped in this context. Since the share of energy in the Consumer Price Index (used to calculate consumer inflation) in CEE countries is relatively high compared to Western Europe, changes in energy prices are more noticeable here. Now, by complete coincidence, they have become an anchor that somewhat slows down the dynamics of inflation.

Nevertheless, it does not change the fact that with the persistence of both external and internal inflationary pressures, soon, or even now, inflation expectations may become a factor that maintains the unfavourable situation if not worsens it. We may still console ourselves, and some actually do so, that everything is fine, because wages are rising faster than inflation. But it would be best if we didn’t forget that we are close to finding ourselves in an entirely different situation: in which the rate of inflation may exceed wage growth. Then there will be even less justification for the current monetary policy, and it will become even more difficult to control the situation.

Moreover, stagflation, a concept that was invented during the oil crisis of the 1970s, is returning to use, though perhaps it is a bit of an exaggeration for the time being. It describes a situation where high levels of exogenous inflation persist despite recession, depriving governments and banks of some anti-crisis policy tools. Concern about stagflation as well as rising prices of energy and energy resources can be seen all over Europe.

Currently, skyrocketing energy prices in Europe, at least during the upcoming winter, seem inevitable. And irrespective of rising wage expectations and the risk of pro-inflationary impact of the next wave of expansionary fiscal policy, they will have a significant and difficult-to-control impact on the rise in prices. Particularly in this context, rushed proposals of regulations, such as the aforementioned sectoral taxes, are cause for concern, as they might increase the risk of further price increases. In winter, prices will almost certainly be high for reasons beyond our control. Therefore, the government should refrain from actions that are burdened with the risk of triggering an inflationary spiral.

 

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

 

See more: 13.10.2021 Opinion of the Chief Economist of the Union of Entrepreneurs and Employers: What’s coming up next with inflation?

Warsaw, 14^th October 2021

 

Opinion of the Chief Expert on Energy of the Union of Entrepreneurs and Employers
on the amendment to the Distance Act

 

With growing concern, we have realised that the legislative proceedings with regard to the amendment to the so-called the “anti-windmill act” have significantly slowed down. The proposed changes to the regulations primarily aimed at liberalising the “10H rule”, according to which it is forbidden to locate wind farms next to buildings in a radius of less than 10 times the height of a wind turbine. This rule in its current wording is widely recognised as harmful to the investment potential of renewable energy sources. At the same time, it remains one of the most restrictive rules for locating wind farms in the entire European Union. In fact, this rule makes it impossible to invest on 99.7% of Polish land.

The prepared draft act amending the act on investments in wind farms and certain other acts was subject to extensive public consultations, during which stakeholders from all backgrounds and organisations involved in the development of green energy participated. This way, a consensus was reached aimed at bringing a significant investment impulse for the Polish RES market. It is therefore rather incomprehensible why the process of adoption of this amendment faces new obstacles and is so slow.

Awaiting the novelised provisions of the “10H act” are also state-owned energy companies, which have both the appropriate funds and RES investment opportunities. The planned separation of conventional energy sources and their transfer to the National Energy Security Agency (NABE – Narodowa Agencja Bezpieczeństwa Energetycznego) will result in a complete organisational and business shift of these entities towards green energy.

Further regulatory uncertainty is sparked by recent statements of Ministry of Development and Technology representatives, according to whom the draft amendment is not a priority for the central government. This may to a greater extent delay the implementation of the new regulations. Such an approach may indicate a failure to recognise the scale of problems taking place in connection with the application of the restrictive “10H rule”.

In our view, the amendment to the Distance Act is one of the most pressing issues the Polish authorities have to address in the context of the energy sector’s development. The aforementioned modification of the strict provisions will make it possible to execute RES projects– currently the cheapest source of electricity production – quickly and efficiently.

Furthermore, one should also pay attention to the growing energy deficit, an increasingly significant threat to domestic energy industry. Therefore, we feel compelled to stress that onshore wind energy together with large-scale photovoltaic sources can significantly reduce the growing deficit and simultaneously have a positive impact on energy prices on the Polish national market. In our opinion, the development of renewable energy sources is also important for the implementation of the Polish Hydrogen Strategy, as these sources will be of key importance for the development of modern technologies in the field of energy.

Companies owned in part by the Polish National Treasury and private investors alike had commenced investment projects in onshore wind farms that were later forced to stop in 2016 due to unfavourable provisions of the Distance Act. Liberalisation of the “10H rule” would allow for the completion of these projects, and thus would enable a rapid execution of modern, efficient and cheap energy sources with a capacity amounting to approximately 5 GW, which in our climate could provide up to 15 TWh (terawatt hours) of green energy per year after 2025.

Only then could our economy safely await green energy supplies coming from offshore wind farms, and there would be no need to make emergency or unprofitable purchases of green energy for industries exporting to European markets.

With all of the above in mind, we wish to appeal to the Ministry of Development and Technology to resume works leading to the adoption of the amendment as soon as possible, as it will enable quick investments in renewable energy sources.

 

Włodzimierz Ehrenhalt
Chief Expert on Energy of the Union of Entrepreneurs and Employers

 

See more: 14.10.2021 Opinion of the Chief Expert on Energy of the Union of Entrepreneurs and Employers on the amendment to the Distance Act