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POLAND: EU court overturns EC's Retail Tax block

In September 2016 the ruling PiS party introduced a retail tax reform. In October 2016, the European Commission struck down the new retail tax, arguing that it discriminates against larger stores and constitutes state aid. The tax blocked by the EC was be based on revenue, with no tax due on the first 17 million PLN of monthly sales. Monthly revenues from 17 to 170 million PLN were subject to a 0,8% tax, with anything above taxed at 1,4%. The levy was expected to bring in an additional 1,9 billion PLN in 2017 alone, and was one of PiS’ main strategies of financing the government’s spending plans. The tax did, after all, aim to both raise government revenues and level the playing field between largely foreign-owned retail giants and smaller local stores.

Yesterday, the European Court of Justice overturned the European Commission’s decision to block the levy. The Court argued that the threshold of the tax itself cannot be considered as selective and a lack of a levy on SMEs is not state aid. The decision of the Court is a big hit for Brussels and a win for the PiS party, which was not expected by many commentators. It is not certain, however, if the levy will come back. The European Commission has two months to appeal the decision of the Court and will most likely do so. If it does, Poland will have to wait another year or so for the second verdict. Still, the ruling will now hold significant political value for PiS. Ahead of the European elections next week, the party will be able to argue that it has a won a battle against the European Commission which wanted to block a law beneficial to Polish interests. The revenue from the retail levy could also be used to fund a significant part of PiS’ new spending proposals.