Will Poland change stance on EU corporate tax?

The European Commission, the EU's executive arm, is holding back from paying Poland €36 billion ($40 billion) in payouts from the EU's post-pandemic recovery fund. That's until Warsaw can show it is rolling back changes made to the judiciary, which the EU says breach its rule-of-law commitments.

Poland is now withdrawing those reforms that the EU deems antidemocratic. As a result, its opposition to a flagship international tax on corporations — widely seen as an attempt to leverage Warsaw's veto power to open up Brussels' purse strings — will likely end after weeks of negotiations.

A spat with long legs

Poland’s objections to a flagship EU directive on the global minimum tax rate are "only political," Germany’s finance minister, Christian Lindner, said this week. 

Polish Justice Minister Zbigniew Ziobro regularly threatens that Poland might use its veto in all EU matters that require unanimity. 

Waldemar Buda, Poland's deputy funds and regional policy minister, warned that if the European Commission doesn't approve its KPO (Poland's National Recovery Fund) by the end of the year, Warsaw could torpedo EU projects. Jacek Saryusz-Wolski, a ruling Law and Justice (PiS) MEP, has even presented a list of possible measures to force the EU into concessions, including sabotaging "Fit for 55," the Commission’s flagship green energy reform package.

Piotr Buras, director of the Warsaw office of the European Council on Foreign Relations think tank, told DW that not all of Poland’s resistance was about blackmailing the EU. He meant Poland’s resistance to undoing its judicial reforms, but also EU demands that Poland rewind media and other legislation that Brussels also deems to be undemocratic. The tax reform resistance is just the latest in attempts by Warsaw to push the EU to unblock payments to Poland. 

What exactly did Poland block?

The European Parliament backed a demand for a minimum effective corporate tax rate in a report adopted in March 2021. In October 2021, 137 countries agreed to introduce a minimum corporate tax rate of 15%, which for the first time would put a floor to tax competition between countries.

The so-called Aurore Lalucq report calls for the implementation of a minimum corporate tax rate for multinationals into European law. The 15% rate is expected to bring in €48 billion in revenues yearly for the EU by ensuring multinationals like Google and Amazon pay more tax where they make their profits.

This taxation of digital giants was called Pillar One and was the initial objective of the global reform. Pillar Two, the global minimum tax, was added later on.

Polish rationale

The Polish government’s rationale for opposing the EU’s plans is that pillars 1 and 2 of the original OECD plan that the EU has signed up to are inherently linked.

The Polish Finance Ministry wrote in a communique sent to DW: "Poland’s position on the minimum tax directive has been consistent throughout the period of works on the proposal. On April 5 we maintained our view that the pillars should be considered as a package. The EU has to ensure that digital giants will pay their fair share and in its current form, the directive does not achieve this."

"We find lowering of the EU’s competitiveness and placing of additional burden on European businesses under Pillar Two, without ensuring that digital giants are duly taxed under Pillar One, inadequate," it reads.

Introducing 15%  — higher than current corporate rates in Poland — in all signatory countries would mean Poland and other Central and Eastern European countries would stand to lose out on tax competitiveness.

What price justice?

The release of the KPO cash is dependent on Poland meeting rule-of-law conditions set by the European Commission by the end of June in order to receive the first tranche in September. 

The EU set out three conditions for approval: dismantling the controversial Disciplinary Chamber for judges, reforming the disciplinary regime and reinstating dismissed judges. 

On May 25, the lower house of parliament (Sejm) held the second reading of the presidential draft of changes on the Supreme Court, which provides for, among other things, the liquidation of the Disciplinary Chamber and its replacement with the Chamber of Professional Responsibility.  

The disbursement of funds from the KPO may now take place around September, government spokesman Piotr Müller said, adding that all the programs in the KPO were already up and running.

The Court of Justice of the European Union (CJEU) ordered Poland to immediately suspend its system of disciplinary proceedings against judges last April. In October the CJEU began issuing €1 million fines a day against Warsaw as long as it refuses to comply with the ruling. The PiS government has rejected the judgments of the CJEU on its reforms of the judiciary and has refused to date to pay penalties imposed by the CJEU. 

Doubts persist

Some are asking if Brussels should be prepared to believe PiS is committed to "repairing" Poland’s judicial independence. 

"The last draft amending the Act on the Supreme Court is not a retreat, it is not a desire to restore certain standards. This is an apparent step back, but in fact nothing changes. The most important issues related to the rule of law are not eliminated," Michal Laskowski, president of the Criminal Chamber of the Supreme Court, told radio RMF FM on May 25. 

Wojciech Sadurski, a professor in jurisprudence at the University of Sydney, says the "sham Constitutional Tribunal was employed in a preventative action meant to shield Polish law from EU scrutiny: it grotesquely announced that CJEU interim judgments do not apply to Poland."

Warsaw Mayor Rafal Trzaskowski said on TVN commercial television on May 26 said the amended law on the Supreme Court, which liquidates the Disciplinary Chamber, "does not fully resolve" the problem of EU fund payments to Poland.

"There must be absolute certainty that there will be implementation of measures that will lead to full independence of the courts," he said.

So, is Warsaw now likely to give up on its earlier demands that the two pillars be implemented simultaneously? 

France proposed signing a common declaration stating that the two pillars were connected, but this failed to convince the Polish government. Perhaps it will do the trick a second time round?

Edited by: Hardy Graupner