ZPP Newsletter
Warsaw, 2nd 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 36th 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 33rd 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.
[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: 2nd November 2021)
