The European Commission has opened a new front in its deepening conflict with Central and Eastern European governments over restrictions on big foreign supermarkets.
The battle became bloodier Monday when Brussels said it was launching an in-depth investigation to determine whether Warsaw was using a new tax to favor smaller local supermarkets over big foreign retailers. The Commission insisted that the Poles must not levy their new tax until the probe was complete.
Poland’s Finance Minister Paweł Szałamacha hit back Tuesday, slamming the European Commission’s move as a “success for lobbyists.”
The confrontation is shaping into one of the most serious challenges to the coherence of the single market under European Commission President Jean-Claude Juncker. Governments across Eastern Europe have reacted to Europe’s dairy crisis and protests from struggling farmers by turning the screws on foreign supermarkets. They argue that farmers with little bargaining power are forced to accept unfair contracts and rack up losses, while big retailers profit from low milk prices and do not buy enough local produce.
The Commission has expressed concern that requirements to buy more local produce or encourage domestic supply chains contravene single market rules.
The counter-measures are coming in quick succession. Countries such as Romania and Slovakia have passed laws to make supermarkets buy more local produce. Sofia is proposing a new law that products should have packaging in Bulgarian, rather than stickers added later. Hungary and Poland have looked to set new taxes on big retailers.
The Commission has expressed concern that requirements to buy more local produce or encourage domestic supply chains contravene single market rules. The new taxes are seen as potential violations of the EU’s state aid rules if governments are found to be giving an unfair advantage to small domestic businesses.
Szałamacha said that Warsaw would suspend the tax “for the moment” but added that the ministry would, if needed, prepare a new tax aimed at big supermarkets. He told reporters that the government planned to have a new tax in place by January 1.
He added that Brussels’ action “benefits multinational corporations while harming smaller businesses … corporations which have not paid a zloty of taxes in Poland are obtaining the support of the European Commission.”
If the Commission issues a final decision that the Polish tax constitutes illegal state aid, then Warsaw intends to appeal to the European Court of Justice, he said.
The Commission argued it was concerned that Warsaw was acting illegally by imposing graded tax bands based on turnover. The measure came into force on September 1, although Brussels complained that it had not been notified.
“According to the Commission’s 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. Poland has so far not demonstrated why larger retail operators should be taxed [differently] from smaller players in light of the objectives of the tax on retail sales,” the Commission said in a statement.
“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,” the Commission added.
The probe into Poland’s tax comes hard on the heels of the Commission decision on a similar structure in Hungary, which it found to be in breach of state aid rules in July.
Beyond retailers, the Commission is also keeping a close eye on the equally inflammatory issue of land ownership in Eastern Europe, where governments from Warsaw to Bucharest have either taken or discussed measures to restrict purchases by foreigners.
Neil McMillan, director of advocacy and political affairs at EuroCommerce, which lobbies for supermarkets, welcomed the moves by Brussels for “acting to try and keep the single market working.”
“The decision by the Commission came just in time, because the first instalments would have had to be paid very soon,” he said.