On September 19, 2016 the European Commission issued a press release announcing that it has opened an in-depth investigation into Poland's tax on the retail sector. According to the press release the European Commission has concerns that the progressive rates based on turnover give companies with a low turnover a selective advantage over their competitors in breach of EU state aid rules.

In the press release the European Commission announces that on September 19, 2016 it has issued an injunction, requiring Poland to suspend the application of the tax until the European Commission has concluded its assessment. This follows a decision the Commission took in July 2016 on a progressive turnover-based tax on the retail sector in Hungary, which the Commission found to be in breach of EU state aid rules because it granted a selective advantage to companies with low turnover over their competitors.

According to the press release, the investigation opened on September 19, 2016 concerns a tax adopted by Poland in July 2016, which applies to companies that operate in Poland and are active in the retail sale of goods. The European Commission statest hat the tax only entered into force on September 1, 2016, and no payments were due yet.

Under the tax, companies in the retail sector would pay a monthly tax to the State based on their turnover from retail sales. In particular, the retail tax features a progressive rate structure with three different brackets and rates:

·   a tax rate of 0% applies to the part of the company's monthly turnover below PLN 17 million (approximately €3.92 million),

·   a tax rate of 0.8% is levied on the part of the company's monthly turnover between PLN 17 million and PLN 170 million (approximately €39.2 million), and

·   a tax rate of 1.4% is levied on the part of the company's monthly turnover above PLN 170 million.

The European Commission states that it started to look into the matter following media reports. According to the European Commission, Poland did not notify the tax to the Commission. The European Commission also states that in August 2016, the Commission received a complaint alleging that the Polish retail tax is in breach of EU state aid rules.

The European Commission states that it does not question Poland's right to decide on its taxation levels or the purpose of different taxes and levies. However the European Commission also states that, the tax system should respect EU law, including state aid rules, and should not unduly favour a particular type of company, for example companies with lower turnover.

According to the press release at this stage the European Commission has concerns that the application of progressive rates based on turnover confers a selective advantage on companies with low turnover and therefore involves state aid within the meaning of the EU rules. According to the European Commission this progressive rate structure has the effect that companies with low turnover either pay no retail tax or pay substantially lower average rates than companies with high turnover.

In the press release it is stated that according to the its preliminary assessment, the progressive rate structure is not justified by the logic of the Polish tax system, which is to collect funds for the general budget. The European Commission adds that Poland has so far not demonstrated why larger retail operators should be taxed different from smaller players in light of the objectives of the tax on retail sales.

The European Commission will now investigate further to determine whether its initial concerns are confirmed. More information will be available on the Commission's competition website, in the public State Aid Register under the case number SA.44351.

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