Warsaw, 31^st May 2023

 

ZPP report: CIT in Poland – why is it not as it should be?

 

The Union of Entrepreneurs and Employers has published its latest report “CIT in Poland – why is it not as it should be?” which is an attempt to systematise the knowledge on the functioning of corporate income tax in Poland.

The year 2022 was exceptional in terms of the share of budget revenues from taxes. For the first time ever in history, CIT revenues (PLN 70.1 billion) exceeded those from PIT (PLN 68.1 billion) from natural persons. The shift in priority in relation to the value of the tax paid is an extraordinary situation resulting from the record-breaking – 33.9 percent y/y – increase in CIT revenues. In recent years, not only the amount of tax paid in nominal terms, but also in relation to GDP, was the highest in history.

However, the observable increase in CIT revenues did not bridge the gap in relation to this tax. Due to its often-elusive nature from an economic perspective, the size of the CIT gap is largely the result of the collected estimates. The Polish Economic Institute in their “CIT Gap in Poland” (“Luka w CIT”) report states that in 2019-2020 the level of the CIT gap stabilised at approx. 30% of theoretical CIT revenues. This means – recalling the suggestive picture outlined by PIE experts – that out of every PLN 100 of tax that should flow to the state budget and local governments, they receive only about PLN 70. According to estimates, the CIT gap in 2020 was between PLN 20 and 25 billion. Recent years have also been a period of dynamic changes regarding the scale of the phenomenon.

Therefore, the Union of Entrepreneurs and Employers set itself the goal of systematising the latest available analytical knowledge concerning CIT, discussing the key phenomena related to this tax, identifying successes and failures in terms of reducing the scale of the phenomenon of aggressive tax optimisation and considering the reasonableness of alternative concepts – with the entire repository of opportunities and risks correlated with it.

The “CIT in Poland – why is it not as it should be?” report was created as part of the Business for Poland, Poland for Business project.

 

Find out more: 31.05.2023 CIT report in Poland. Why is it not as it should be?

Warsaw, 15 May 2023

 

 

“Network fees” proposed by telecommunications operators – will consumers pay twice for infrastructure maintenance?

 

1. Recommendations

Over the past months there has been an increased discussion regarding ETNO’s (European Telecommunications Network Operators’ Association – representing the biggest telecommunications companies) demands to charge content and application providers for the traffic that is generated by the use of their services. Telecoms believe that because of them they are being forced to bear the costs of infrastructure maintenance, and call content providers “stowaways” who do not contribute to the maintenance of European infrastructure. The truth, however, is quite different, and this is not a fight between telecoms and the big Internet giants, but a fight for the Internet as we know it. The concept of “fairshare payments,” as telecoms call them, is opposed by virtually all circles, except the largest Internet providers. Their introduction will certainly also be felt by Polish digital companies, which employ thousands of people and contribute greatly to the economy. 

In this paper, we will present where the idea of introducing “fair share payments” came from and how it is argued. We will also present what effects the implementation of this solution will have on consumers and entrepreneurs, and we will present individual national circumstances.

In view of the ongoing debate on the introduction of “fair share payments” we note the following:

• Not even the telecoms themselves agree on the cost of handling Internet traffic. The Fédération Française des Télécoms presented an estimate according to which handling network traffic generates €2 billion in costs in France, or €27 for each resident of the country. That’s a third of the amount of €80 per EU resident calculated by ETNO, and it’s still significantly inflated.
• The research indicates that South Korea is so far the only country that has responded to the concerns of telecoms and introduced the legal billing rule of Spending Party Network Pays (SPNP). Under the rules, Internet content and application providers have been required to pay fees to telecoms. The report’s conclusions are clear. All of these regulations have led to a reduction in the quality and variety of content on the Internet. It is also expected to increase costs for the end user of content and reduce investment in local infrastructure
• Fair share payments can lead to a deterioration in the quality of online content offered by providers. Additional fees mean a reduction in budgets for creating quality services offered to consumers.
• The introduction of additional fees will lead to a competitive imbalance in the telecom market itself favoring the largest players. They will lead in practice to the strengthening of oligopolies in the market.
• Fair share payments are widely criticized by almost all circles except the largest telecoms. Experts point out that among the numerous disadvantages of this solution, the most noteworthy is the violation of the principle of Internet neutrality.
• In Poland, the expansion of Internet infrastructure is carried out with massive public funding. This means that this purpose is financed by all taxpayers. One can point, among others, to the information contained in the “Broadband Access Plan for Poland,” according to which in the Digital Poland Operational Program for 2014-2020, out of the total funds amounting to 2.57 billion euros, over a billion was allocated to the expansion of broadband networks.

In view of the above, we urge to reject the idea of introducing “fair share payments” within the European Union.

2. Proposals to introduce so-called “fair share payments”.

For nearly a year there has been a discussion on the idea of introducing so-called “fair share payments”. This idea was presented by Commissioner Vestager on May 2, 2022^[1]. Unfortunately, all indications are that the European Commission is seriously considering the introduction of fair share payments for Internet content and application providers. The issue is being highlighted as a dispute between two big industries, Internet access providers (telecoms) and big Internet corporations. The issue has come to the fore through ETNO’sactivities , which is extensively lobbying for the introduction of fees for “extraordinary growth in Internet traffic that generates challenges for sustainable investment in the European network.” This position is supported among others by Deutsche Telecom, Orange, Telefonica and Telecom Italia, claiming that the six largest Internet content providers account for more than half of Internet traffic^[2]. The argument, in a nutshell, is that large US corporations generate heavy network loads by offering their content, and this leads to the need for large infrastructure expenditures. This traffic is generated by the popularization of streaming, teleconferencing, remote learning, social media, and cloud services. Telecoms assume that since annual network maintenance in 2020 cost €52.5 billion, and service and application providers account for 60-70% of Internet traffic, they should pay €36 billion (€80 per EU resident) to telecoms. Moreover, this amount should increase every year due to the growth of network traffic^[3].

However, the telecoms’ argument is fraught with a number of significant problems. First of all, telecoms charge consumers themselves for internet use. Their demands on service and application providers are nothing more than a demand for a second fee for the same service.

This relationship is illustrated by the graph below:

Telecoms make their infrastructure available to consumers. Consumers use internet content offered by service providers and applications, and this generates traffic on the network. As the use of content available on the Internet generates traffic, telecoms have decided to demand an additional fee from service and application providers called “fair share payment.”.

What is also worth noting is that telecoms argue for their demands with the need to maintain the network due to increased traffic (load). Meanwhile, telecoms’ investments consist of relay stations, fiber optics, modems, and data centers, among other things. A large cost is, for example, the construction of masts and fiber-optic networks. Nevertheless, 70-80% of the total telecom costs are spent precisely on infrastructure, which lasts and can be successfully used for at least 30 years. The remainder relates outdated equipment, which should be upgraded every 5-10 years. The cost of “network maintenance” due to high traffic is therefore not high, and this is explicitly admitted by some telecoms. The Fédération Française des Télécoms presented an estimate according to which handling network traffic generates 2 billion euros in costs in France, or 27 euros for each resident of the country. That’s a third of the amount of €80 per EU resident calculated by ETNO, and it’s still significantly inflated.  In France, you can easily find consumer offers of 10 gigabit-per-second connections along with phone and TV at prices around 30-49 euros per month^[4]. These package offers are also a great example of existing interrelations and co-dependencies between telecommunications operators and service providers. In Poland, Orange offers fiber optics with 1 Gbps download speeds for 17.5 euros per month^[5]. It is also worth citing an example in which one German student accommodation organization wanted to provide students with Internet access at a speed of at least 1 Gbps at all times in 2020. The offer for such access was made by 8 German telecoms, of which 5 offered the amount of 11 euros per month per student^[6]. These examples indicate market prices for Internet access, no Internet provider would bid below its costs. Hence, the calculations of both ETNO and the Fédération Française des Télécoms are clearly inflated.  It is also difficult to argue that internet platforms are “free riders” because they have invested billions in the construction and development of internet infrastructure over the last decade.

3. Effects of “fair share” fees on citizens and businesses.

A fee similar to “fair share payments” has been introduced in South Korea, and this is basically the only case where we can find similarities with existing solutions. The Korean example has been studied by BEUC (The European Consumer Organization), among others. It cited a study commissioned by the German Federal Internet Agency. The research indicates that South Korea is so far the only country that has responded to the concerns of telecoms and introduced the legal billing rule of Sending Party Network Pays (SPNP). Under the rules, Internet content and application providers have been required to pay fees to telecoms. The report’s conclusions are clear. All of these regulations have led to a reduction in the quality and variety of content on the Internet. It is also expected to increase costs for the end user of content and reduce investment in local infrastructure^[7].

A similar view is held by the European Internet Exchange Association, which, analyzing, among other things, the situation in South Korea, points out that “fair share payments” are detrimental to the proper functioning of the Internet communications and peering market and distort competition in this market. In addition, they will negatively affect the experience of citizens in basic business operations, data sharing, access to cloud services and the development of research projects^[8] .

Paradoxically, therefore, “fair share” fees in Korea have had exactly the opposite effect of the one that telecoms claim they were intended to serve. It should be pointed out that the introduction of additional fees on Internet content providers could force them to introduce at least partial payment for their services, which were previously free. This could reduce access to online content and lead to digital exclusion of less affluent Internet users. This straightforwardly violates the principle of Internet neutrality, which, however, by definition says that it is the ability of all Internet users to access selected content and applications.

Another issue is the reduction in the quality of content available online. Clearly, many companies offering, for example, streaming services, access to online TV or other video content will be affected by such fees. Prices for access to content can be introduced here or raised only up to a certain level, above which consumers will not be able to accept additional fees. In practice, it will be impossible to pass on the entire cost to content consumers. This means a smaller budget for the creation of quality online content. Similar concerns are presented, among others, by the European Association of Commercial Television and VoD Services, which has issued an open letter expressing concern on the introduction of network fees and its’ effects on the European creative industry^[9]

Crucially, the dispute over “fair share payments” should not be viewed as a conflict between big telecom companies and big Internet corporations. These fees have the potential to very seriously undermine competition on the Internet and threaten the smallest entrepreneurs. Such concerns are presented by the French Association of Alternative Telecom Operators, among others, which notes that fees of this kind will be fatal to the survival of small and medium-sized digital companies[10]. Small companies offering content on the Internet will be put in a very difficult position, as on the one hand they will be charged for Internet traffic, and on the other hand it will be difficult for them to pass this cost on to consumers. The introduction of fees to offset the cost of “fair share” fees will make them lose their competitiveness with larger players in the market. 

What’s more, smaller telecom service companies are also openly criticizing the idea of fees. Such threats are pointed out by both MVNO Europe and the EU Competitive Telecommunications Association (ECTA). They point out that the fees will cause serious damage to competition in the telecom market, will directly affect smaller operators, and will negatively impact both individual consumers and telecom customer companies. The fees will only benefit the largest players in the market by strengthening their oligopolies^[11] .

“Fair share payments” are also criticized by academics. In October 2022, they sent a letter to the European Commission signed by 29 market experts, PhDs and professors who know the market very well. They pointed out that the proposal to charge Internet service providers and applications is not new and has always been rejected as harmful. They point out that for the past decade the idea has been unequivocally criticized by experts, business and NGOs. The experts point out in their letter that in 2015[12], the EU granted internet users the right to freely access information and content, use and deliver applications and services of their choice. EU standards require broadband service providers to treat data in a non-discriminatory manner, regardless of what it contains, what application transmits the data, where it comes from and to whom it is directed. Even if fair share payments were directed only to the largest Internet content providers, this would still directly violate open Internet access standards.

Experts also point out that broadband networks are an important part of the value chain just as Internet content providers are driving demand from Europeans for access to the Web. Broadband providers gain significant benefits from the fact that service providers generate demand for broadband access. In doing so, telecoms pay nothing for the efforts of Internet content and application providers in creating that demand. Without the demand generated by Internet content providers, telecoms would not have many customers for high-speed Internet access services. Customers who, after all, pay telecoms for that access. Moreover, governments, universities, government offices and other public entities are also Internet content providers. All of these entities are already paying for the development of Internet networks. The researchers also explicitly point out that history and economic theory indicate that similar fees will not increase investment in Internet infrastructure by telecoms^[13].

The European Video on Demand Coalition is also opposed to “fair share payments,” pointing out that the introduction of this fee will harm the development of innovation in Europe and the digitization process. They also express concern that proposals of this kind are being put forward without adequate public consultation and analysis of the impact of such solutions[14]. Germany’s VAUNET argues that fees threaten media pluralism and the quality of content^[15], while the Association of Commercial Television points out that Internet access fees for content providers mean less money for content creation. Which will ultimately lead to less or lower quality content^[16].

Finally, it should be noted that on June 8, 2022. 34 social organizations from 17 countries sent an open letter to Commissioners Vestager and Breton pointing out the problems cited above and opposing the introduction of “fair share payments.” The authors of the letter emphasize that the Commissioner’s statement about players generating a lot of Internet traffic who should be charged a fair fee to telecoms shows a fundamental misunderstanding of how the Internet works^[17].

So it turns out that both businesses (including smaller telecoms), social organizations, industry organizations and academia speak with one voice and strongly oppose the idea of “fair share payments” stressing that it is harmful to the entire market. The only entities that will gain from it are the largest telecoms, which are actively lobbying the solution at the European Commission.

4. Polish market

The value of the Polish telecommunications market is 40.8 billion Polish zlotys (approximately 8.73 billion euros). Telecommunications investments in 2020 amounted to 8.9 billion Polish zlotys (approximately 1.95 billion euros). As many as 66.6% of broadband internet users have a connection with a bandwidth of at least 100 Mbps, and estimates indicate that by 2026, over 80% of mobile internet users will have access to 5G technology[18].

According to a survey conducted by the Office of Electronic Communications on a sample of 2011 people aged 15 and over, 97.2% of people in our country use mobile phones, 54.9% use mobile internet, and 54.1% use stationary internet. Any kind of internet access was declared by 79.1% of the respondents. The average monthly bill for stationary internet is 59.17 zlotys (just under 13 euros), while for mobile internet it is 46.43 zlotys (approximately 10 euros)[19]. Poland ranks 30th in the Speedtest Global Index for broadband internet access speed, with an average speed of 106.40 Mbps, and 44th for mobile internet with a speed of 47.86 Mbps[20]. Therefore, the internet in Poland is relatively fast and inexpensive.

Providing fast internet at a relatively low cost, of course, requires investment in infrastructure. However, in Poland, a number of such tasks are undertaken from public funds and do not cost telecom companies a penny. One can point, among others, to the information contained in the “Broadband Access Plan for Poland,” according to which in the Digital Poland Operational Program for 2014-2020, out of the total funds amounting to 2.57 billion euros, over a billion was allocated to the expansion of broadband networks[21]. Further expenditures are planned in the program for 2021-2027. The entire 2 billion euros is to be allocated, among other things, to ensure access to broadband internet with a speed of at least 100 Mbps in every household and business and with a speed of at least 1 Gbps in every place that is significant in terms of social and economic aspects, such as schools, hospitals, offices, and technological and business centers[22]. In addition, funds for the expansion of internet infrastructure have also been planned in the Broadband Fund, which will finance investment projects worth a total of 20 million zlotys in the first call[23]. Further financing has also been planned in the National Recovery Plan. Formally, 21% of the budget is allocated for digitization-related projects, although Minister Plenipotentiary Paweł Lewandowski suggests that even over 30% of the NRP budget may be allocated to this purpose. By 2026, 931 thousand households are planned to be connected to broadband networks[24].

Taking into account the scale of public investments in expanding internet infrastructure, it is clear that the largest cost associated with the dissemination of fast internet in Poland has been to a large extent supported by public funding, mainly through funds from the EU. Similarly, in other countries, huge amounts of money from both the EU and national budgets are allocated for digital transformation. Therefore, telecom companies are not bearing these costs, but rather taxpayers. This means that big telecommunication companies are using infrastructure financed by all of us, burdening their customers with the costs of internet access, and now they are demanding “fair share payments” from content and internet application providers, which could result in significant changes to the internet as we know it, unfortunately only for the worse. Telecom companies will gain by receiving enormous amounts of money, while we will all lose.

In addition, other instruments such as the Broadband Fund are being prepared or already launched, and the development of telecommunications infrastructure is included in the National Recovery Plan.

Therefore, it is difficult to find rational reasons for additional funding of telecommunication operators’ budgets. Moreover, the adoption of the proposal on network fees may in practice lead to limiting access to certain platforms, which directly contradicts the principle of net neutrality.

***

^[1] https://www.reuters.com/business/media-telecom/eus-vestager-assessing-if-tech-giants-should-sharetelecoms-network-costs-2022-05-02/ (accessed April 27, 2023).

^[2] https://www.reuters.com/technology/eu-wants-details-big-tech-telcos-investment-plans-source-2023-01-10/ (accessed April 27, 2023).

^[3] https://www.project-disco.org/european-union/020123-fast-internet-doesnt-cost-eu-telecom-operatorsmuch-at-all/ (accessed April 27, 2023).

^[4] https://www.project-disco.org/european-union/020123-fast-internet-doesnt-cost-eu-telecom-operatorsmuch-at-all/ (accessed April 27, 2023).

^[5] https://oferty.orange.pl/swiatlowod2/ (accessed April 27, 2023).

^[6] https://www.project-disco.org/european-union/020123-fast-internet-doesnt-cost-eu-telecom-operatorsmuch-at-all/ (accessed April 27, 2023).

^[7] WIK-Consult report, Study for the Federal Network Agency Germany, Competitive conditions on transit and peering markets Implications for European digital sovereignty Final report.

^[8] https://www.euro-ix.net/media/filer_public/c7/72/c772acf6-b286-4edb-a3c5042090e513df/spnp_impact_on_ixps_-_signed.pdf (dostęp na dzień 27.04.2023 r.).

^[9] https://www.acte.be/publication/tv-vod-statement-on-network-fees/ (accessed April 27, 2023).

[10] https://www.project-disco.org/european-union/020723-is-anyone-in-favour-of-taxing-internet-traffic/ (accessed April 27, 2023).

^[11] https://www.project-disco.org/european-union/020723-is-anyone-in-favour-of-taxing-internet-traffic/ (accessed April 27, 2023).

[12] Regulation (EU) 2015/2120 of the European Parliament and of the Council of November 25, 2015, Official Journal of the European Union L 310.

^[13] https://www.komaitis.org/personal-blog/29-internet-experts-and-academics-send-a-letter-to-thecommission-urging-to-abandon-the-sending-party-network-pays-proposal (accessed April 27, 2023).

[14] https://www.europeanvodcoalition.com/positions/position-paper-on-net-neutrality/ (accessed April 27, 2023).

^[15] https://www.politico.eu/wp-content/uploads/2022/11/02/VAUNET-positionpaper_NetworkFees.pdf (accessed April 27, 2023).

^[16] https://www.acte.be/publication/tv-vod-statement-on-network-fees/ (accessed April 27, 2023).

^[17] https://epicenter.works/sites/default/files/2022_06-nn-open_letter_cso_0.pdf (accessed April 27, 2023).

[18]https://www.telepolis.pl/images/2022/06/raport_o_stanie_rynku_telekomunikacyjnego_w_polsce_w_2021_r._30.06..pdf (accessed April 27, 2023).

[19] Office of Electronic Communications, Analysis of the functioning of the telecommunications services market in Poland and assessment of consumer preferences. 2022. Survey of individual customers.

[20] https://www.speedtest.net/global-index (accessed April 27, 2023).

[21] https://digital-strategy.ec.europa.eu/en/policies/broadband-poland (accessed April 27, 2023).

[22] https://www.gov.pl/web/funds-regional-policy/nearly-2-billion-euros-for-polands-digital-transformation (accessed April 27, 2023).

[23] https://www.gov.pl/web/cyfryzacja/fundusz-szerokopasmowy–pierwszy-nabor-wnioskow (accessed April 27, 2023).

[24] https://www.wirtualnemedia.pl/artykul/internet-szerokopasmowy-rozwoj-sieci-budzet-kpo ; https://www.gov.pl/web/planodbudowy/transformacja-cyfrowa (accessed April 27, 2023).

 

See more: 15.05.2023 “Network fees” proposed by telecommunications – operators will consumers pay twice for infrastructure maintenance?

Warsaw, 13 December 2022

 

Report Conference – Summary of the Rebuild Together Programme

 

On 13 December, a conference summarising the project of the ZPP (the Union of Entrepreneurs and Employers), “Europe – Poland – Ukraine. Rebuild Together” took place. This was another initiative of the ZPP, following the social campaign “We help Ukraine”, the purpose of which was to create and strengthen the relationship between European, Polish and Ukrainian business communities and to prepare a framework for cooperation in the future reconstruction of the Ukrainian state and economy.

As Marcin Nowacki, the Vice President of the Union of Entrepreneurs and Employers, pointed out: “The essence of the project is to support Ukrainian business in the process of entering the Polish market and cooperating with Polish companies. Based on this, we want to establish an agreement, so that the Polish business will play a major role in the reconstruction of Ukraine in the future”.

The first stage of the project was the organisation of a series of meetings – five meetings in a form of round table talks – the goal of which was to establish a dialogue, discuss expectations and priorities related to the reconstruction of Ukraine and to identify industries and companies ready to cooperate to strengthen the Ukrainian economy. As part of that initiative, face-to-face meetings were held with Polish and Ukrainian representatives of industries crucial to the maintenance and reconstruction of the Ukrainian economy. Additionally, two main events were organised within the scope of the Rebuild Together programme – in Warsaw, on 6 October, and in Kyiv, on 28 November.

The reconstruction of Ukraine will be a multinational action of the EU, G7 countries. Nonetheless, the  funds for the reconstruction of Ukraine from individual countries will be allocated based on the preferences of business – noticed the Vice President of the ZPP.

The Vice President of the ZPP was supported by other participants of the conference. As Bartosz Marczuk stated, “The reconstruction of Ukraine is an opportunity for cooperation and building our position in the long term perspective – the fact that we are talking about that now is of great importance, as the process of rebuilding Ukraine has already begun.

There should be as many micro-level relationships as possible. It is necessary to network and use the capital of Polish business”-  emphasised the Vice President of the Management Board of the Polish Development Fund.

Energy security will undoubtedly play a key role in the reconstruction of Ukraine and its economic activity. Mateusz Domian spoke in that context.

The lack of electricity affects all industries, the whole business” –  said the acting Director of the Representative Office of PKN ORLEN in Ukraine, “The lack of electricity can be compensated with the use of other raw materials, especially diesel oil; however, the situation in Ukraine is also difficult in that respect. It is extremely important for Ukraine to maintain, after the war, its independence from Russia and Belarus in terms of raw materials and continue its cooperation with Poland and the European Union in that respect.

With regard to the opportunities and possibilities for the development of Polish business in the present situation, the last speaker at the conference agreed with the previous speech makers saying: “Geographically, Poland is in a privileged position when it comes to the possibility of expanding economic activity in the process of rebuilding Ukraine and cooperation with Ukrainian business. Polish logistics is definitely attractive for Ukrainian companies”.

All conference participants emphasised the need for further action in terms of implementation of the objective of the programme ,,Europe – Poland – Ukraine. Rebuild Together”. The Vice President of the ZPP stated that the activities to establish and strengthen the relations between the European, Polish and Ukrainian business communities have only just started and added that the ZPP wanted to continue to take an active part in them.

The summary of all the activities under the “Rebuild Together” project, which has been implemented for more than six months, is the report which contains the conclusions and a description of individual actions undertaken as the result of the meetings of the representatives of economic sectors in the form of round table talks and conferences.

 

See: 13.12.2022 Report: Summary of the project “Poland-Europe-Ukraine. Rebuild Together”

Warsaw, 30 June 2022 

 

CIT is a de facto voluntary tax, it is necessary to make comprehensive changes

 

The Union of Entrepreneurs and Employers (ZPP) has for many months been investigating the way in which large foreign corporations make CIT payments in Poland. In our previous publications, we have pointed out that the corporate income tax structure allows for far-reaching tax optimisation and favours the activities of the largest entities that are able to carry out such optimisation effectively. As a consequence, CIT has become an almost voluntary levy and many entities pay only symbolic amounts to the state budget, often much less than 1% of the revenue generated in Poland.

This time, ZPP selected 18 of the largest and most recognisable companies with German roots and operating in our country. Using publicly available data on the website of the Ministry of Finance, we checked what revenues these companies generated, what costs they reported and how much CIT they paid in the period from 2012 to 2020, i.e. the entire period for which the data was disclosed on the MF website. In addition to data on CIT payments, the ZPP also tracked data available on the website of the Office of Competition and Consumer Protection on the amount of state aid granted also in the period from 2012 to 2020.

Analysis of the data shows that of the 18 companies, only four paid CIT in the period under review in excess of 1% of revenue. Interestingly, none of the surveyed automotive companies paid tax above this threshold. In addition, many of the companies received many times more state aid during the nine years of operation than they paid in income tax to the state budget.

“For multinational corporations, Poland is a tax El Dorado” says Cezary Kaźmierczak, President of ZPP, “There are, of course, many that contribute very significantly to our budget. Still, many benefit from our infrastructure and access to the Polish market, paying less income tax than some households. That is why we have been proposing for years a simple income tax that would eliminate such situations.”

For example, Volkswagen Motor Polska paid CIT in the amount of 0.003% (!) of the revenue it generated, while at the same time it received the highest state aid among the surveyed entities. The actual (gross) aid to this company amounted to almost 200 times its CIT, of which the company paid around PLN 1.5 million (nominally, the aid was even higher – PLN 1.5 billion, and therefore 1,000 times the tax paid in the period under review).

Other companies associated with the Volkswagen Group also paid only symbolic CIT – Volkswagen Group Polska 0.392 per cent, Volkswagen Poznań 0.648 per cent, while Porsche Inter Auto Polska paid a tax of just one-tenth of one per cent of their revenue.

Some of the surveyed companies also received very significant state aid. In addition to the already mentioned Volkswagen Motor Polska, another Volkswagen company, Volkswagen Poznań, received more than PLN 187 million in real state aid (PLN 644 million in nominal terms). In addition, high gross state aid was received by ZF Automotive Systems Poland (PLN 92 million) and BSH Sprzęt Gospodarstwa Domowego (over PLN 81 million).

The data we have analysed shows that also for German companies operating in Poland, CIT is paid in most cases at a symbolic amount. Poland certainly suffers from a lack of effective and transparent tax law, in every area. The current system leads to outright bizarre cases, and the lost budget revenue resulting from the CIT gap runs into billions of PLN every year.

 

30. 06. 2022 ZPP Report: Taxes of German companies in Poland

Warsaw, 6 June 2022 

 

Conclusions from the latest ZPP report monitoring the EU-ETS market – the participation of speculators in this market is underestimated

The European Union Emissions Trading System (EU-ETS) was launched in 2005 and was updated several times in subsequent years. The existence of this market was supposed to be an incentive for the Member States to choose more sustainable energy sources and decarbonise the European economy. As part of the Fit for 55 package, the European Commission has adopted a legislative proposal to revise the EU Emissions Trading System (ETS) with the intention of adapting it to meet the objective of a 55 % reduction in net greenhouse gas emissions in the EU by 2030 (compared to 1990 levels).

At the same time, the price dynamics for European Union Allowance (EUA) have increased significantly over the past few months. The price of emission allowances (EUA price) sold under the EU Emissions Trading System (ETS) has risen from under EUR 30 per metric tonne of coal in 2020 to over EUR 90 by the beginning of 2022.

The Union of Entrepreneurs and Employers has, over the past few quarters, systematically prepared and circulated among the organisation members a report aimed at a cyclical analysis of the specifics of transactions on the EU-ETS market, including in terms of speculator participation.

In March this year, the European Securities and Markets Authority (ESMA) – following numerous critical opinions regarding the speculative rising of EUA prices on the EU-ETS market – issued a report on the state of the carbon market in the European Union. According to the report: “The analysis has not identified any serious shortcomings in the functioning of the EU market for emission allowances, based on the available data. However, the market analysis conducted by ESMA has led to a number of recommendations to improve the transparency and monitoring of this market.“

And while the conclusions of the ESMA report are not satisfactory for those in favour of excluding speculators from the EU-ETS market, the authors themselves acknowledge that recently there is a growing interest in this market on the part of entities such as investment funds. Among other things, it was their speculative activities that have led to an intense increase in the price of this instrument over the past several months, which in turn has translated into a dramatic rise in energy prices.

The ZPP report entitled “EUA: PRICE BUBBLES AND THE COMPETITIVENESS OF POLAND AND THE EUROPEAN UNION” clearly shows that the EU-ETS market is subject to a very high risk of price bubbles. The microeconomic characteristics of the market for CO2 emission allowances have not changed during the past year. The same flaws and weaknesses that have been highlighted for a year are still present. However, it is worth noting the change in narrative that has taken place over the last few months. In the spring of 2021, the possibility of price bubbles forming on EUAs was mentioned by a few, and their voices were ignored by the energy mainstream. Today, the subject is regarded quite differently by the public opinion, with more and more experts noting that this phenomenon is now real.

The European Parliament is holding a debate on the possible exclusion of financial entities from the EU-ETS, which is supported directly by ZPP through Vice-President Marcin Nowacki’s involvement in the work of the European Economic and Social Committee (EESC).

The report is the last in a series of quarterly monitorings of the situation on the market for CO2 emission allowances. This is the fourth version of the document, distributed exclusively to ZPP members. The current edition includes updated econometric modelling for Q1 2022. In the conclusions, we additionally focused on how the formation of price bubbles influences the competitiveness of Poland and the EU. We will continue monitoring the topic and following market behaviour and regulations in this area. We therefore encourage you to stay in touch with us. If you are interested in the report or the issues it addresses, please send a message to biuro@zpp.net.pl.

 

Warsaw, 8 April 2020

 

The companies that decided to continue their operation in Russia have nothing to do with “the social responsibility of the business” And what does their fair CIT settlement in Poland look like?

REPORT OF THE UNION OF ENTREPRENEURS AND EMPLOYERS

 

The disgusting and unjustified Russian invasion of Ukraine has led to widespread ostracism and consumer boycotts. The broad scope of the sanctions meant that some companies had limited choice as far staying in Russia goes. Companies in the banking, energy or high-tech sectors have had to submit to decisions ordering to halt the trade immediately. The only companies that had a say in all of this were the ones of the retail and manufacturing sectors. Most of them have made this decision on their own – and in the eyes of the ZPP the only right decision there is – to leave this country. But not all of them.

ZPP has made a decision to look into the companies that have chosen to stay in Russia. Continuing our series of publications on how some multinational corporations go about their tax settlement, we have turned our attention to entities that have decided to continue doing business in the Russian Federation. In the course of the analysis it turned out that a significant number of these entities pay marginal income tax in Poland – in many cases, in relation to their revenues and the scale of their activity, multiple times lower than in Russia.

– Companies like to boast about their social responsibility, but the real value of these declarations is verified in moments of trial, when basic decency has to be demonstrated – says Jakub Bińkowski, member of the board and director of the Law and Legislation Department at ZPP.

– Maintaining the decision to continue operating in Russia feeds the aggressor’s budget and generates funds for the war-related activities. This is difficult to understand, all the more so since doing business in the country now involves gigantic risks and the purchasing power of Russian consumers is consistently decreasing. We are not particularly surprised that those who have decided to continue operating in this country, despite everything that’s happening, pay almost symbolic CIT in Poland. However, this is an additional reason why urgent reform of the tax system is necessary. Especially since the same entities pay much higher sums to the Russian budget – adds Jakub Bińkowski.

However, the information presented in the report is also a reminder of the extent to which companies remaining on the Russian market contribute to the country’s budget, also by paying corporate income tax. They are thus becoming sponsors of Vladimir Putin’s regime and, indirectly, of the ongoing war-related activities.

Leaving aside the current context, this phenomenon once again shows how inefficient the Polish tax system is, particularly in the area of tax paid by capital companies. We have repeatedly argued that CIT is de facto voluntary, as it is paid only by those entities that do not engage in tax optimisation.

Companies cited in the report include Makro Cash&Carry, Auchan, Astrazeneca Pharma, Decathlon, Leroy Merlin, but also Rockwool, Bonduelle, Total Polska (Totalenergies Group), Glaxosmithkline Pharmaceuticals and Schneider Electric. It turns out that these companies have not only decided to stay in Russia, but also systematically pay CIT at a fraction of a percent of revenue.

– We went a step further in our analysis and checked what the tax practice of the same companies looks like on the territory of the Russian Federation – says Kamila Sotomska, deputy director of the Law and Legislation Department of the ZPP.

– Logically, the same entities that do not pay CIT in Poland would not pay it in Russia in order to maximise global profit. Well, apparently not. Let’s take Leroy Merlin – in 2020 alone it paid almost three times as much tax in Russia as it did for nine years in Poland. Auchan paid five times more to the Russian budget in 2020 than to the Polish tax in 2012-2021 – she stresses.

More details in our report: How much CIT do companies that stayed in Russia pay in Poland?