Top EU lawyer says Polish retail tax on turnover is not state aid

The Polish retail sector tax and the Hungarian advertisement tax, both progressive and based on revenue rather than profit did not violate EU state aid rules.

A top EU lawyer declared in an opinion published on Thursday.

Both taxes had been declared incompatible with EU common market rules by the European Commission, which claimed they created an unfair advantage for smaller businesses facing lower tax rates on their lower revenue.

These concerns were rejected in 2019 rulings by the European Court of Justice (ECJ), but the EU executive filed appeals.

The Thursday opinion of Advocate General Juliane Kokott is in line with the ECJ rulings and proposes that the court dismisses the commission’s appeals, an ECJ statement reads.

“A progressive rate does not constitute an inconsistency per se and is a perfectly common means in income taxation of achieving taxation according to financial capacity,’’ the statement reads.

The top EU lawyer also pointed out that turnover-based income taxes are on the rise, as evidenced by the EU’s own proposed digital tax.

The advantages and disadvantages of a turnover-based tax system should be weighed by a democratically mandated legislature rather than the court, according to the statement.

The European Union’s executive acts as the competition watchdog for the EU single market, and can step in if it believes a company is conferred unfair advantage.

However, control over tax policy remains with the EU member states.

Poland introduced its retail tax in 2016, but has suspended its collection.

In the 2021 budget bill, Poland has planned revenues from the retail tax.