Warsaw, 10^th May 2021

Survey by the Union of Entrepreneurs and Employers:
Pawnshop market is growing fast

While the number of consumer loans granted by banks and companies specialising in loans is declining, and the government is tightening regulations for the financial industry, the pawnshop sector is booming. According to the first ever report on pawnshops in Poland by the Union of Entrepreneurs and Employers: although pawnshops provide cash loans against a pledge, they are circumventing the provisions of the Consumer Credit Act.

In a survey by the Union of Entrepreneurs and Employers whose completion took several months, its authors evaluated the size of the market in Poland, as well as the motives and opinions of customers making use of pawnshop services, but also found irregularities in the operation of the industry.

These are the key findings of the study:

• There may be as many as 40,000 pawnshops in Poland. For comparison: there are less than 7,000 convenience stores in the popular retail chain whose logo is a green amphibian.
• Almost 4.5 million Poles have made use of pawnshop services, and 1.5 million people used such services during the pandemic.
• As many as 65% of pandemic-times pawnshop customers backed their decision with the fact that their financial situation deteriorated as a result of the lockdown.
• As many as 41% of pawnshop customers used their services, because they had not obtained financing from a bank or loan company.
• Over the last dozen or so months, secured pawn loans have become almost as popular as consumer loans from legal loan companies.
• Pawnshops avoid formal registration and functioning as pawnshops per se and consequently circumvent the Consumer Credit Act, which regulates the relationship between financial institutions and their customers, strengthening the position of consumers. For example, employees of the Union of Entrepreneurs and Employers paid a visit to a pawnshop operating as… a butcher shop.
• In many cases, irregularities were observed, including failure to conform with provisions of the GDPR. Contracts did not contain clauses on the processing of personal data of customers, and the survey also showcases irregularities in the documentation of transactions.
• The valuation of an item accepted in a pawnshop on average amounts to only about 35% of its market value. For example, for a gold neck-chain bought in a store for PLN 490, one can only get PLN 90.
• There are also situations in which customers are not able to read the contract prior to signing it or to withdraw from it later on.
• The lack of clear rules for calculating the cost of a loan is another identified irregularity – it happens that verbally provided information on the cost of a loan is inconsistent with what is ultimately in ink.
• For a pawnshop loan, one has to pay up to 1.5%… a day.

While working on the report “The pawnshop market in Poland – irregularities, consumer protection, systemic risk”, the Union of Entrepreneurs and Employers thoroughly scrutinised this sector. Research showed that pawnshops play an increasingly significant role in the personal finances of millions of Poles.

“A considerable group of consumers have lost access to regulated and supervised sources of obtaining money on the financial market. The reason is simple: these people no longer meet the criteria to be granted cash loans, and as a consequence have been forced to look for alternative methods of obtaining funds. And so, Poles ‘en masse’ went to pawnshops,” says Marcin Nowacki, Vice-President of the Union of Entrepreneurs and Employers.

Pawnshops everywhere

As of today, pawnshops in Polish cities are easily accessible and basically commonplace. One can easily spot them, pay a visit, and make a trade. These factors mean that pawnshops quickly gain customer interest. Over the period of a year, Poles have noticed and increasing number of people in their personal circles who make use of such services, which is also confirmed by research by Maison&Partners commissioned by the Union. Already 14% of Poles have experience trading an item at a pawnshop, and as many as 5% have used this method of obtaining cash since March 2020, that is, the outbreak of the pandemic. In other words, as many as 1.5 million Poles used the services of pawn shops over the last 12 months. Pawn loans have now become almost as popular as those from regulated loan companies.

According to Professor Dominika Maison, the author of the survey on pawnshop customers, Poles have become accustomed to pawnshops, and many have a rather good opinion of them. “Pawnshops are no longer considered merely a last resort or an act of desperation. In time of loss of earnings or high job insecurity, they have become a convenient and quick form of obtaining cash with no strings attached,” explains Professor Maison.

However, research carried out by the Union’s associates show that entities running pawnshop operations circumvent the provisions of the Consumer Credit Act, and thus, among others, the applicable limits of non-interest costs that are applicable to entities wishing to grant financial loans, but also consumer rights such as the obligation to familiarise customers with the contract prior to signing it or to inform them about the actual costs of the loan.

Pawnshop at the butcher’s

What was really difficult for experts to analyse was the number of pawnshops operating in Poland. It took experts and associates of the Union of Entrepreneurs and Employers several months of efforts to determine the size of this market.

“We thoroughly reviewed existing data, public registers, conducted telephone interviews at points conducting pawnshop activities, and finally visited randomly selected locations. The conclusion is that it is practically impossible to estimate the real number of pawnshops in Poland. Their number may range from 3,000, as this is the number of the relevant Polish Classification of Activity entries, up to 40,000,” claims Piotr Palutkiewicz, co-author of the report.

As the authors note in their report, despite the fact that in the Polish Classification of Activity (PKD), there is a special code 64.92.Z on (among other things) granting secured loans, it turns out that entities operating on the pawnshop market avoid registering under this code. Henceforth, pawnshops avoid to formally function as pawnshops. The Union’s experts visited, among others, a pawnshop, which was registered as… a butcher shop.

Pawnshops overlooked by the watchful eye of the legislator

In the report, the Union of Entrepreneurs and Employers draws attention to the legal environment of the financial system in Poland. The Union’s expert wrote that: “The financial market can be considered overregulated. Therefore, it seems that the liberal requirements for entities wishing to enter a given financial services sector can be evaluated favourably. However, what ought to be pursued are equal opportunities and requirements for enterprises operating on the market. Nevertheless, the legislator selects groups of entities on the financial market on a point-by-point basis and additionally regulates them. As a result, banks or loan companies “enjoy” excessive and frequently amended restrictions. While other entities, such as pawnshops, operate in an unhampered legal environment. This translates not only into the lack of equal opportunities for enterprises, but also into unequal consumer protection on the financial market.”

Pawnshop standards

According to research by Maison&Partners commissioned by the Union of Entrepreneurs and Employers, consumers go to pawnshops without any deeper analysis of the costs of t transactions, either planned or concluded. They do not compare the possibilities of obtaining cash available to them. They act spontaneously. This may pose a risk to consumers, as the finding from the research lead to the conclusion that pawnshops do not have uniform rules with regard to informing about the terms and conditions of transactions or uniform standards of customer service.

The Union’s associates visited more than a dozen Polish pawnshops in order to carry out transactions there. The survey showed a number of irregularities and problems from a consumer protection perspective. These include:

• frequent failure to provide contract templates for inspection by the client prior to signing the document,
• significant discrepancies in the valuations of the pledged items,
• no clear cost calculation rules,
• no clauses on the processing of personal data of customers,
• irregularities in documenting transactions,
• verbal and inconsistent information on the real pawn loan costs.

“The standards of customer service and protection differ from the practices applied on the regulated financial market. For example, in some cases, customers were unable to familiarise themselves with contracts or later withdraw from them,” sums up Marcin Nowacki.

Experts of the Union of Entrepreneurs and Employers add in their report: “The issue of spreading a protective umbrella over consumers is raised every single time when works on new regulations of the financial market take place. Therefore, the question arises whether the abandonment of the regulation of the pawnshop market is the intention of the legislator or whether the pawnshop sector is simply invisible from the point of view of law and consumer protection.”

It’s an expensive service

The Union of Entrepreneurs and Employers indicates in the report that pawnshop loans are primarily characterised by very high costs. The percentages fluctuate within a very wide range: from 0.66% to over 1.5% per day. In addition to the amount of interest, the real cost of the transaction is the difference between the market value and the valuation of the items at the pawnshop. Customers declare in the research that they receive on average PLN 224 less than they assumed they would before finalising a transaction. However, they do not negotiate for a higher valuation. As a result, the average valuation of an item handed over to a pawnshop amounts to merely about 35% of its market value.

“Our survey of pawnshop customers showed that money often has a subjective value. It does happen that customers decide to pledge an item, without the intention to buy it out, for 30% of its value, and – surprisingly – they are often satisfied with such a transaction. This is due to the fact that from their subjective point of view, which takes into account more than just financial issues, the transaction was beneficial, because, for example, they did not care about that item. They needed money immediately or did not want to have any obligations in the form of instalments or any additional costs resulting from not paying back on time, including debt collection,” explains Professor Dominika Maison.

Car as collateral

According to the report by the Union of Entrepreneurs and Employers, numerous pawnshops accept high-value items and real estate as collateral, such as a car garage, parking space, refrigerated trailer or agricultural tractor.

“Our associates were able to pawn a luxury passenger car. However, the valuation of the pawnshop was PLN 50,000 lower than in the car vendor’s advertisement,” adds Piotr Palutkiewicz.

The report by the Union of Entrepreneurs and Employers is the first ever study and description of such comprehensive scope dedicated to this market in Poland. The full text of the study is available at: https://tiny.pl/rv9fr.

Warsaw, 15^th May 2021

 

Commentary of the Union of Entrepreneurs and Employers on the Polish Deal

 

The Polish Deal is an exceptionally anticipated document, the presentation of which had been postponed several times. Having discussed today the general assumptions of this programme manifesto, we conclude that – in areas of particular interest to entrepreneurs – it does not contain any ground-breaking solutions.

In the Polish Deal, we fail to find the awaited proposals regarding the legal and institutional environment for business, while the issue of legal uncertainty – a key barrier to investment at the moment – is not even mentioned. The proposed measures presented in the section “Good climate for enterprises” are as a matter of fact recycled ideas that were previously announced or solutions that have been underway for some time. Part of them, such as the introduction of the institution of a family foundation or the extension of “Estonian CIT”, are of course beneficial for entrepreneurs; however, these proposals were already known and described in the past. Therefore, the Polish Deal does not introduce any major novelties in the field of entrepreneurship.

Certainly, two key components of the programme deserve approval, and these are: increasing the tax-free amount to PLN 30 thousand and the second tax threshold to PLN 120 thousand. Both laudable decisions are of the most rational nature and adjust these amounts to the economic reality in which wages have been steadily growing for years.

Unfortunately, these solutions are accompanied by a proposal for changes in the scope of health insurance, that is, the introduction of a model of a uniform premium in the amount of 9% of total income, which would not be tax deductible. Therefore, in practice, the Polish Deal may lead to an increase of burdens for some taxpayers.

Nevertheless, there are certain solutions discussed in detail that were announced during the conference and which are praiseworthy. In this respect, one must mention, among others, the changes regarding the possibility to build a house with an area of up to 70 sqm on request. In smaller towns, this may solve the housing problems of Polish families to a high degree. It is important that the regulations introducing this change directly indicate that the possibility of building in line with this procedure also applies to residential all-year-round houses.

The announced “liquidation of junk contracts” (civil-law contracts) raises serious doubts. If we are to understand that the government means to equate premiums for all types of contracts, this will result in a considerable reduction in the flexibility of forms of employment on the labour market. While we see the need to intervene in the scope of limiting tax arbitration, we would consider its proper form to be a general reduction of the tax wedge on remuneration earned under various employment contracts.

The trend towards digitisation that is evident in the Polish Deal is commendable both in terms of the healthcare system and other public services. It will be one of the greatest challenges ahead for the years to come – it is therefore advantageous that the topic of digitisation is particularly highlighted in the National Recovery Plan and the discussed programme document.

The complexity of the political programme under discussion, which concerns both economic issues and those related to public services, the healthcare system or pro-family policies (exceptionally important from the point of view of the problematic demographic situation), makes its detailed analysis time-consuming. In view of the above, the Union of Entrepreneurs and Employers will present a comprehensive position on the Polish Deal on Monday of the following week.

 

See more: 15.05.2021 Commentary of the Union of Entrepreneurs and Employers on the Polish Deal

Warsaw, 23^rd April 2021

 

European minimum wage – smothering the EU economy
at a key moment in overcoming the crisis

 

The Directive on adequate minimum wages in the European Union will have detrimental effects on the European labour market and economy. Furthermore, the directive may worsen the situation of the most vulnerable workers, make it more difficult for the EU to recover from the ongoing crisis, and disrupt well-functioning collective bargaining systems. These are the main reasons why the Union of Entrepreneurs and Employers, together with SME Connect and the European Enterprise Alliance, co-hosted a Round Table on the European Minimum Wage on 23^rd April.

The round table constituted a platform for the exchange of experiences and opinions for Polish and European as well as global organisations that helped shed new light on the proposals of the European Commission. The negative impact on companies affected by the crisis, the marginalisation of the most vulnerable of workers, and the growing number of people employed on the basis of other forms than a contact are merely a few of the actual effects of the directive, which are being downplayed by the Commission. That is also why the discussion covered the aspect of the Commission’s competences in the field of remuneration, the issue of the lack of a minimum wage in individual EU countries, or the impact of the directive on the competitiveness of the European economy on world markets.

Over the course of the event, a letter to EU authorities on the European Minimum Wage was published. It was addressed to the President of the European Commission Ursula von der Leyen, President of the European Parliament David Maria Sassoli and President of the European Council Charles Michel. The signatories of the appeal who object the proposal of a European minimum wage are 25 Polish and European institutions, including employers’ organisations, associations, and think tanks.

The authors of the letter firmly stressed that the European Union should remain a place of freedom and cooperation, where practices of one EU member states are not imposed in other member states. The signatories also drew attention to the fact that the proposal for adequate minimum wages in the European Union is focused on achieving political goals and fails to take into account the real effects of the regulations introduced, which will – first and foremost – negatively affect those whom the directive was supposed to help, that is, those who earn the least.

 

See more: 23.04.2021 Letter on the European Minimum Wage

Warsaw, 15^th April 2021

 

Over 30 business organisations and think tanks appeal to the government: yes to a tax wedge reform, no to choking the middle class

 

As many as 33 organisations signed an appeal to the government regarding the planned amendment of the labour taxation model. The authors of the document emphasised the necessity of a rational debate regarding the tax wedge and drew attention to the threats arising from some of the directions of changes that were postulated. Among the signatories of the appeal, there are five representative employers’ organisations, four think tanks, over a dozen industry organisations and numerous local employers’ organisations. The appeal was initiated by the Union of Entrepreneurs and Employers.

What prompted the development of the appeal were the announcements of tax changes to be included in “Nowy Ład” (“The New Order”), a strategic economic programme, the publication of which was postponed in March due to the pandemic. Among those announcements, there were an increase of the tax wedge for higher earners, along with a decrease for lower earners.

The signatories of the appeal see the need for a bold reform of the tax wedge in Poland, but stress the fact that the current model of relatively low wage taxation constituted a significant competitive advantage for our economy, and increasing the level of burden on the middle class may lead to an outflow of specialists, whose numbers are already insufficient, from the Polish labour market.

 

The full text of the appeal is presented below:
Organizations’ appeal on labour taxation

Warsaw, 19^th April 2021

 

Digital Markets Act Round Table by the Union of Entrepreneurs and Employers: how to make the DMA a “scalpel” and not a “road roller”?

 

The Digital Markets Act is a proposal presented by the European Commission for a regulation imposing additional restrictions, obligations, and bans on a group of digital companies referred to in the DMA as “gatekeepers”. Participants of the round table hosted by the Union of Entrepreneurs and Employers, which took place on Thursday, 8^th April 2021, discussed the Polish government’s position regarding the regulation, the challenges related to its possible future application, as well as the doubts related to its practical effects.

The following guests participated in the debate:

• Olga Semeniuk, Undersecretary of State at the Ministry of Development, Labour and Technology,
• Tomasz Bagdziński, Director of the Competition Protection Department at UOKiK (Office of Competition and Consumer Protection),
• Katarzyna Szymielewicz, President of the Panoptykon Foundation,
• Tomasz Wróblewski, President of the Foundation Warsaw Enterprise Institute,
• Marcin Krasuski, Government Affairs and Public Policy Manager at Google Polska.

The round table debate was chaired by Jakub Bińkowski, Director of the Law and Legislation Department of the Union of Entrepreneurs and Employers. Before the discussion began, Bińkowski gave a short presentation reflecting the Union’s approach to regulating digital markets and containing key questions regarding the DMA itself.

„We see the DMA as part of a wider regulatory landscape for the digital sector in the European Union,” said Jakub Bińkowski. “Recently, we have been observing a lot of legislative initiatives concerning this part of the economy. We doubt whether further regulation and increasing restrictions are a good direction for the development of European companies.”

In the course of the discussion, many matters were addressed, including the issue of the actual effects of the DMA on the functioning of companies from the digital sector and the usefulness of individual services, the role of national competition and consumer protection authorities in the application of regulations, or the significance of regulatory dialogue with business to clarify the content of individual obligations and restrictions included in the regulation. Cross-sectional issues were also discussed: the effectiveness of existing regulations affecting digital platforms, such as the GDPR, the approach of the European legislator to building a strong digital market, and finally, the issue of an effective regulatory framework for the management of users’ personal data.

 

The round table debate was recorded and can be viewed at your leisure. It can be viewed at: https://tiny.pl/r8vb5.

Warsaw, 5 May 2021

 

EESC Activities Report no 3/21

 

Marcin Nowacki, President of the European Enterprise Alliance and Vice-President of the Union of Entrepreneurs and Employers, and Tomasz Wróblewski, President of the Warsaw Enterprise Institute, are members of the European Economic and Social Committee (EESC), an EU advisory body which represents employers’ and employees’ organisations in the EU lawmaking process. We present a summary of their activities in March 2021.

On 24-25 March, the EESC plenary session held a debate with the participation of the EU Commissioner for Neighborhood and Enlargement Olivér Várhelyi on “‘Enhancing the accession process – A credible EU perspective for the Western Balkans“.

In addition, during the plenary session, the EESC discussed the trade policy challenges for economic recovery after the COVID-19 crisis with Executive Vice-President of the European Commission Valdis Dombrovskis.

On 1 March, Marcin Nowacki attended an extraordinary meeting of the EESC’s Employers’ Group with C During the debate, Members of the Employers’ Group expressed concern that in recent months new regulations had been adopted that would increase the bureaucratic burden for companies, especially for SMEs. According to the EESC, companies need less bureaucracy, not more. Commissioner Breton explained that the ‘one more, one less’ principle of symmetrically introducing and removing administrative burdens in the same policy area is only the beginning of reducing bureaucracy as part of the Better Regulation agenda.

Moreover, in March this year Marcin Nowacki participated in the meetings of the Section for Transport, Energy, Infrastructure and the Information Society (TEN), as well as the Section for External Relations (REX). The subject of the March meeting of the TEN Section was, among others, discussion of the Opinion on the single European Railway Area, as well as a debate on the Opinion on the report on the State of the Energy Union Report 2020 and Assessment of National Energy and Climate Plans.

Moreover, during the meeting of theREX section , section members discussed, among others, EU relations with the Western Balkans..

Regulatory activity

Tomasz Wróblewski is rapporteur for the EESC opinion on the European economic and financial system: fostering openness, strength and resilience. On March 26, the first study group meeting devoted to this topic took place.

Useful links

• OPINION ECO/544
• European economic and financial system: fostering openness, strength and resilience

Marcin Nowacki has been appointed as a member of the EESC study group on roaming on public mobile communications networks within the Union. The current Regulation (EU) No 531/2012 regulating the above matter will expire on 30 June 2022. The focus of the study group is to provide an opinion on the proposal to extend the validity of the regulation, as well as to adjust the maximum wholesale charges with a view to ensuring the sustainability of the service retail roaming services at domestic prices, introducing new measures to increase transparency and ensure that you are fully satisfied with using your telephone abroad as at home in terms of quality of service and access to roaming emergency services.

More information about the EESC

What is EESC?

The European Economic and Social Committee (EESC) is an EU advisory body comprising representatives of employers’ and workers’ organisations and other interest groups. It issues opinions on EU issues to the European Commission, the Council of the EU and the European Parliament, thus acting as a bridge between the EU’s decision-making institutions and EU citizens.

What does the EESC do?

It gives the interest groups a formal say on EU legislative proposals. Its three key tasks are to:

• Ensure that EU policy and law are reflect to economic and social conditions in the Member States.
• Engage in dialogue with employers’ and workers’ organizations from all member states.
• Promote European integration and participatory democracy.

What is the EESC composition?

The EESC has 329 Members from all EU Member States, who are appointed for a renewable five-year term of office. Members are nominated by national governments and appointed by the Council of the European Union. They are independent and perform their duties in the interest of all EU citizens. The number of Members per country is in proportion to the country’s population.

How does the EESC work?

The EESC is consulted by the European Parliament, the Council of the EU and the European Commission on a variety of subjects. It also issues opinions on its own initiative.

Members work for the EU, independently of their governments. They meet 9 times a year. Opinions are adopted by a simple majority vote.

Meetings are prepared by the EESC’s specialized sections and the consultative commission on industrial change. The EESC’s specialist think-tanks (known as ‘observatories’) track the progress of EU strategies.

The EESC keeps in touch with regional and national economic and social councils throughout the EU – mainly to share information and discuss particular issues.

 

See: 05.05.2021 EESC Activities Report no. 3/21

 

 

Warsaw, 6^th April 2021

Memorandum of the Union of Entrepreneurs and Employers: A uniform 5% VAT rate – rescue for the food services industry and small cost for the budget

For months, the Union of Entrepreneurs and Employers has been proposing to introduce a uniform 5% VAT rate for the entire food catering industry. Contrary to public opinion, the essence of this change is not the idea to increase the demand for these services by lowering prices. A lower VAT rate would benefit restaurateurs whose activities would become much more profitable after re-opening, which would in turn enable them to recover in spite of a lower turnover.

We believe that the discussed instrument might not only prove effective, but also – in terms of expenditure to save the economy – cheap. The estimated costs of its introduction quoted at the level of PLN 1.2-1.5 billion in the ongoing discussion refer to budget revenues from VAT in this industry in 2019, therefore this value is at present completely aberrant. With this in mind, we prepared our own econometric analysis of the real cost of implementing this highly particular reform. Depending on the assumed turnover decrease in the food services industry in 2020 (official data has not yet been published), this cost may range from PLN 350 to 700 million, with the average value being approximately PLN 500 million. Our detailed analysis is presented below.

To measure the additional positive macroeconomic effects of the reduction and unification of the VAT rate on food catering services, we propose a dynamic Keynesian, open-economy model, with two sectors – extended by distinguishing food catering services from other consumer goods. The input for the volume of revenues in the former sector are the data of Statistics Poland (Poland’s central statistical office), Local Data Bank, and revenues from activity related to food services in 2019 (Chart 1). On their basis, VAT revenues and the weighted effective VAT rate were estimated, taking into account the revenue from the sale of commercial goods, the revenue from catering production, the revenue from the sale of alcoholic beverages and tobacco products, as well as other activities.

The forecasted scenario is a shock to the effective VAT rate for catering services imposed in mid-2021.

The effects of introducing a uniform 5% VAT rate

Increase in sales of food catering services: +6,62%

Average change in gross price of food catering services: –4,36%

GDP growth: +0,10%

Household consumption: +0,16%

Budget revenues from VAT for catering services annually: PLN –0.713 billion (assuming a 40% decrease in revenues in 2020) / PLN –0.534 billion (assuming a 55% decrease in revenues in 2020) / PLN –0.356 billion (assuming a 70% decrease in revenues in 2020)

A reduction of the VAT rate, being an element of mitigating the negative sectoral effects caused by the decrease in sales caused by the lockdown and deteriorating consumer sentiment, impacts the economy in three ways. First of all, in 2022, consumption and GDP rise (0.16% and 0.10% respectively) as a direct effect of the decrease in the gross price of food catering services by 4.32% and the increase in sales of catering services by 6.62% annually. Next, the negative effects of the crisis on employment in food catering services are mitigated which is particularly important from the perspective of maintaining a relatively good economic situation. The VAT reduction proposed in the analysis raises the level of employment in the catering services sector by 4.85% in 2022 (Chart 1). And lastly, the income effect. It results from surplus cash available to households, as taxation on their consumption decreases. As a consequence, we observe an increase in consumption of other goods and an increase in household savings, which later translate into a slight increase in investment in the economy (0.01%).

Chart 1. Dynamic presentation of the impact on macroeconomic variables induced by the introduction of a uniform 5% VAT rate for food catering services from mid-2021 [Percentage changes in variables compared to the reference level].

Observing the dynamics of these variables over the course of the first years of the shock, we see a strong increase in employment and sales of food catering services. They are a result of the relatively high flexibility of the demand for such services. This value ranges from 0.8 to 1.5, and the value for Poland adopted for the purposes of the analysis is 1.157 (cf. Grotkowski, 2018).

As a result, in this particular sector, the proposed VAT reduction is a very effective tool in the short-term fight against the decline in demand due to the lockdown and deterioration in consumer sentiment. In the longer term, the average gross price of food catering services starts to rise, and then stops at a lower level than before. We see the reflection of the subsequent price increase in the subsequent upward trend following the decline in VAT revenues from the sale of food catering services.

Furthermore, it is rather noteworthy that the unification of the VAT rate will also contribute to the simplification of the whole VAT system and will positively affect it in terms of simplicity and transparency. This in turn will significantly contribute to the improvement of business conditions in the food catering services sector, which are an important group of micro-, small and medium-sized entrepreneurs. Taxing all catering services with a uniform VAT rate will facilitate the use of tax law and the correct application of its provisions in economic practice, and will thus eliminate possible abuse in this area.

 

See more: 06.04.2021 Memorandum of the Union of Entrepreneurs and Employers: A uniform 5% VAT rate  – rescue for the food services industry and small cost for the budget

Warsaw, 14 April 2021

 

The Union of Entrepreneurs and Employers’ position on the digital levy

We welcome the European Commission’s consultation on the digital levy. The consultation document recognizes the progress made thanks to digitization while highlighting the need for regulation of the digital world and placing it within the context of other EU’s initiatives. At the same time, the consultation document implies that digital companies do not contribute their fair share in taxation. Furthermore, the initiative does not provide much detail about the construction of the future tax and enumerates three potential approaches, namely a top-up tax on corporate income aimed at digital companies, a tax on revenues and a tax on digital business-to-business (B2B) transactions. There is a number of fundamental problems related to this initiative.

The first relates to the lack of a clear definition of what constitutes a digital business. According to the OECD, ‘[b]ecause the digital economy is increasingly becoming the economy itself, it would be difficult, if not impossible, to ring-fence the digital economy from the rest of the economy for tax purposes.’^[1] The lack of a commonly agreed definition also means that the precise scope of the future digital levy is unclear. While EU’s initiative aims at creating a level-playing field for the European companies, a tax on digital activities is very likely to burden a vast majority of them and further deteriorate their ability to compete globally. The scope of a possible digital levy should be based on a thorough economic impact analysis and not target digital companies without justification.

The second issue concerns the fact that the fairness argument is based on incorrect assumptions. In 2017, the EC has referred to a PWC and ZEW report showing that the effective average rate of digital companies is three times lower than that of traditional ones.^[2] Nevertheless, PWC has published a special note explaining that the data presented did not reflect the actual tax rate of specific companies, but only the rates tax rates on returns from investments in intangible assets, and hence they cannot be used to compare the level of taxation of digital and traditional companies.[3] Furthermore, dr. Matthias Bauer from ECIPE has researched the effective tax rates of digital and traditional corporations, which found that the traditional corporations paid slightly less tax than the digital ones (26.8% vs. 27,1%).[4]

The third point, which is in our opinion highly problematic, is the introduction of the digital levy during the ongoing crisis. The health and economic crisis caused by the pandemic of coronavirus is far from over. Regardless of its’ final construction, the digital levy will increase the costs of the digital services, which have become the primary means of work for many across the globe. Moreover, the Copenhagen Economics study has shown taxes on digitization and innovation effectively burden the SMEs and other end-users[5] Finally, it is important to note that the Commission sees digitization as an important motor of a post-pandemic recovery, while increasing the costs of digital services will slow down the recovery process.

Another pertinent point is the consistency of digital levy with other EU’s strategic objectives. The first and most important concern in this regard relates to the EU’s commitment to multilateralism. The OECD work on the digital taxation is ongoing. Particularly since the new US administration has re-engaged in the discussions, the EU’s unilateral introduction of the digital levy would undermine the OECD efforts and possibly lead to trade tensions. The second mismatch exists between the digital levy and the Tax Action Plan. The EU has pledged to create a simple tax environment to reduce obstacles for businesses in the Single Market. The digital levy, which will add a new layer to an already overly complicated system (which includes digital service taxes imposed by some countries), stands in opposition to this idea.

Finally, in our view, the three approaches to the digital levy have certain important limitations. First, a top-up tax on corporate income would have to be compatible with a variety of corporate tax systems across the EU, to including varying tax rates and deductions. Second, the tax on revenues will lead to double taxation. Introducing a tax on revenues, which have already been subject to a corporate income tax in a country where the users and merchants are based, amounts to levying an additional value added tax or excise duty. Tax on revenue can be also harmful to less profitable European businesses. Generating revenue is not equal to generating profit, hence such tax is discriminatory towards companies with smaller margins as they will bear a greater burden of the tax. Third, the tax on digital business-to-business transactions is likely to create negative effects for all market participants – digital companies selling within the EU, SMEs and consumers in particular. It is important to keep in mind there is a number of reforms in the field of digital B2B transitions already underway and putting forward digital levy would further complicate the system.

In brief, the EU should support reaching a globally agreed solution at the OECD to reform the international tax framework. A proposal for a European digital tax should be put forward only in case if the OECD negotiations break down. In that event, the proposal should include solutions proposed on the OECD level as to minimize any potential tensions. Alternatively, when a consensus on the OECD level is reached, Member States, which have implemented digital taxes, should withdraw then as to prevent a fragmented and multilayered taxation. Finally, we suggest a holistic approach to the digital levy. Not only ongoing OECD works but also existing tax rules related to online activities (inc. eCommerce VAT Directive and Proposal for DAC 7 Directive, currently finalized) should be taken into account.

 

See more: 14.04.2021 The Union of Entrepreneurs and Employers’ position on the digital levy

 

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[1] https://www.oecd-ilibrary.org/docserver/9789264218789-en.pdf?expires=1617886901&id=id&accname=guest&checksum=193CF9B4B724F6041E9291393EB34E0A

[2] https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52017DC0547&from=PL p. 6

[3] https://www.pwc.com/us/en/press-releases/2018/understanding-the-zew-pwc-report.html

[4] https://ecipe.org/wp-content/uploads/2018/02/ECI_18_OccasionalPaper_Taxing_3_2018_LY08.pdf

[5] https://www.copenhageneconomics.com/publications/publication/the-impact-of-an-eu-digital-service-tax-on-german-businesses

 

Fot. New Africa / Adobe Stock

Warsaw, 12th April 2021 

 

EESC Activities Report no. 2/21

 

Marcin Nowacki, President of the European Enterprise Alliance and Vice-President of the Union of Entrepreneurs and Employers, and Tomasz Wróblewski, President of the Warsaw Enterprise Institute, are members of the European Economic and Social Committee (EESC), an EU advisory body which represents employers’ and employees’ organisations in the EU lawmaking process. We present a summary of their activities in February 2021.

On February 24-25, the EESC plenary session held a debate on the conference on the future of Europe with the participation of Dubravka Šuica, Vice-President of the European Commission for Democracy and Demography. In addition, Committee members adopted a resolution “Organized civil society involvement in national recovery and resilience plans – what works and what does not?”  according to which that it is important to ensure that the real challenges of public health and economic and social recovery are at the heart of decisions and policies for growth.

On February 18, 2021, a first meeting of the study group for offshore renewable energy strategy was held. The rapporteur for the EESC opinion on this strategy is Marcin Nowacki. The main element of the meeting was the discussion on the working document on the EU Strategy aimed at using the potential of marine renewable energy for a climate-neutral future. Furthermore, in its opinion, the EESC expressed its disappointment in the lack of specific measures and instruments for financing offshore wind energy projects. The Committee also indicated that each investment in offshore wind farms should contribute to the greatest possible extent to the socio-economic development of regions in the immediate vicinity of a given investment, by supporting participation in a given project, the so-called local content factor.

Regulatory activity

Tomasz Wróblewski became the rapporteur for the EESC opinion on the European economic and financial system: fostering openness, strength and resilience.

The aim of the proposed strategy is to strengthen the role of Europe in the global financial system, as well as to strengthen the resilience of EU economies against currency crises, reduce dependence on other currencies and ensure lower transaction costs, financing and risk management, while protecting the EU against unfair practices and abuses.

Useful links:

• OPINION ECO/544
• European economic and financial system: fostering openness, strength and resilience

Marcin Nowacki also took part in the 9th meeting of the EU-Ukraine Civil Society Platform, which was devoted to a debate on the assessment of the implementation status of the EU-Ukraine Association Agreement.

Moreover, the proposal for an opinion on the support and cooperation of the European Union with Belarusian entrepreneurs, workers and civil society, which was proposed by Nowacki in January, was accepted by the EESC Bureau, which decided to prepare its own opinion on this matter.

More information about the EESC

What is EESC?

The European Economic and Social Committee (EESC) is an EU advisory body comprising representatives of employers’ and workers’ organisations and other interest groups. It issues opinions on EU issues to the European Commission, the Council of the EU and the European Parliament, thus acting as a bridge between the EU’s decision-making institutions and EU citizens.

What does the EESC do?

It gives the interest groups a formal say on EU legislative proposals. Its three key tasks are to:

• Ensure that EU policy and law are reflect to economic and social conditions in the Member States.
• Engage in dialogue with employers’ and workers’ organizations from all member states.
• Promote European integration and participatory democracy.

What is the EESC composition?

The EESC has 329 Members from all EU Member States, who are appointed for a renewable five-year term of office. Members are nominated by national governments and appointed by the Council of the European Union. They are independent and perform their duties in the interest of all EU citizens. The number of Members per country is in proportion to the country’s population.

How does the EESC work?

The EESC is consulted by the European Parliament, the Council of the EU and the European Commission on a variety of subjects. It also issues opinions on its own initiative.

Members work for the EU, independently of their governments. They meet 9 times a year. Opinions are adopted by a simple majority vote.

Meetings are prepared by the EESC’s specialized sections and the consultative commission on industrial change. The EESC’s specialist think-tanks (known as ‘observatories’) track the progress of EU strategies.

The EESC keeps in touch with regional and national economic and social councils throughout the EU – mainly to share information and discuss particular issues.

 

Fot. rustamank / Adobe Stock

Warsaw, 15^th March 2021

Opinion of the Chief Expert of the Union of Entrepreneurs and Employers on Power Industry regarding the Energy Sector in the National Recovery Plan

The two projects recently presented: the National Recovery Plan (NRP – Krajowy Plan Odbudowy) and the Polish Energy Policy until 2040 (PEP2040), are documents of highly strategic importance that concern, to a large extent, the future of the entire Polish economy. Both strategies will significantly affect the image of our domestic economy, not only in the area of energy.

Furthermore, the recently presented Polish Hydrogen Strategy assumes the development of a national hydrogen economy based mainly on energy from renewable sources, the development of which will depend on the implementation of the assumptions of PEP2040, whereas financing will be in part be provided from funds of the National Recovery Plan.

The assumptions regarding energy presented in the NRP are consistent with the objectives set by the European Commission, which means that the Polish state intends to allocate as much as 37% of the received aid funds to the development of green energy and to the reduction of energy consumption. Individual statements of government officials concerning the goals of climate neutrality that Poland has set itself are also optimistic and quite unambiguous as well as substantively consistent.

According to Małgorzata Jarosińska-Jedynak, Deputy Minister of Development Funds and Regional Policy, at the core of these investments, there will be onshore and offshore wind farms along with large-scale solar energy facilities. This is a very apt statement due to the fact that these are the cheapest and most effective sources of green energy. They are also proven in terms of technology and economy of energy production.

Under the National Recovery Plan, considerable funds are to be allocated to the development of technologies based on biogas and hydrogen. However, reducing the supply deficit of green energy ought to be the absolute investment priority in the years to come.

There is a serious risk that Poland might not receive half of the funds it has been granted under the Just Transition fund. This is due to the lack of support for the EU’s 2050 climate neutrality target. All the more so, Poland needs to further invest in a more precise manner in technologies that could relatively quickly be introduced to the national energy system.

Hydrogen-based technologies are still a thing of the distant future. Yet this does not mean that Poland should not select its fields of specialty, whereas the development thereof ought to be supported. On the other hand, biogas investments will not ensure a complete equilibrium to renewable energy, nor a steady energy supply when there is hardly any sun or wind. They should be supported under the distributed energy development programme, as they have the potential to play a very important supporting role in the development of agriculture as well as economic initiatives in rural areas.

Energy from gas can effectively supplement renewable sources, as it is rational in terms of investment and economics. The Polish economy has considerable opportunities to diversify supplies, thus excluding dependence on a single supplier, in spite of the need to significantly increase gas imports should we decide to develop this type of energy and heat sources. The Polish power industry and the Polish heating sector must for some time be based on gas sources, which we can treat as a temporary fuel, replaceable in the future with hydrogen and / or atom.

Although nuclear power in Poland is still in its design phase, strategic initiatives should be undertaken to develop and make use of nuclear technology as quickly as possible. It is undeniable that the Polish economy will not be able to handle such an investment alone, neither technologically nor economically. The development of this energy source will depend on the right choice of an investment partner with appropriate technical and financial resources. The above will contribute not only to increasing the stability and energy independence of Poland, but also to improving the strategic security of the country.

Mining agreements are another extremely important issue having a fundamental impact on energy policy. A clear and straightforward description of the situation in the energy sector in Europe needs to be presented, as “black energy” may in a couple of years become a hard-to-sell commodity, both domestically and in terms of exports. Coal can only act as a system protection against unpredictable circumstances. Thus, the possibilities of selling steam coal will be significantly limited, most likely to approximately 20 million tonnes annually. Mining agreements should be created only for such a sales programme. On the other hand, sales of coke will remain at an attractive price level for a long time, which may be an opportunity for some Polish mines, especially in the region of Ruda Śląska.

The National Recovery Plan and the Polish Energy Policy should be considered extremely important and necessary documents. They should be consistent and feasible. However, what they require is that their details be worked out and specific goals to be achieved within realistic deadlines, as well as a rational list of Polish specialisations be presented as part of the new division of labour in Europe.

The acceleration of legislation on energy (and renewable energy in particular) is the most important task for the legislators of today due to the need to significantly increase green energy production by 2025 at the latest. Increasing investment opportunities in onshore wind energy may be of decisive importance in the supply of green energy by 2025. Only onshore wind energy and large-scale solar investments can quickly increase the volume of green energy on our market. After this date, producers of goods exported to European markets may be obliged to use only zero-emission energy in the production of most goods.

Włodzimierz Ehrenhalt
Chief Expert of the Union of Entrepreneurs and Employers on Power Industry

 

See more: 15.03.2021 Opinion of the Chief Expert of the Union of Entrepreneurs and Employers on Power Industry regarding the Energy Sector in the National Recovery Plan