The Court of Justice of European Union (“ECJ”) has ruled that Poland may tax larger retailers more heavily than smaller ones. This overturns a decision from state aid regulators and raises the possibility that the tax regime for larger retailers which is currently suspended could be reinstated.
The ECJ decided that “the Polish progressive tax on the retail sector was incorrectly classified as state aid by the EU Commission,” the press service of the ECJ wrote on Twitter. This tax policy was one of the governing Law and Justice party’s main election promises during the 2015 election and came into force in September 2016. It was part of a series of measures designed to fund social spending pledges, which in the end the government managed to finance without the implementation of the retail tax.
Under the scheme, retailers with monthly revenue of over 170 million zlotys ($44 million) were to be taxed more heavily than their smaller shops, many of which had come under pressure from larger chains that were able to benefit from economies of scale to offer lower prices.
However, in 2017 the European Commission ruled that the measures constituted state aid and were thus illegal under EU law. The EU ordered the Polish government to suspend the tax and Poland appealed to the ECJ in Luxembourg. “It is not possible to exclude tax rates from the substance of a system of taxation as the Commission did,” the ECJ said in a statement.
Polish Finance Ministry spokesman Pawel Jurek said on Twitter that as the judgment is not legally binding and could be appealed against, the tax would remain suspended until the end of 2019. “The Commission will carefully study the judgment and based on that may take any potential next steps,” said a spokesman for the EU executive at its daily briefing.