On January 15, 2018 the European Commission announced that it has decided to open an an in-depth investigation into a Polish tax incentive for shipyards. The measure gives shipyards operating in Poland an option to pay a 1% flat-rate tax on sales from the building and conversion of ships, instead of paying the generally applicable corporate or personal income tax.
In September 2016, Poland adopted a law giving shipyards operating in Poland an option to pay a 1% flat-rate tax on sales from the building and conversion of ships, instead of paying the generally applicable corporate or personal income tax.
This option gives shipyards the possibility of paying less tax than under the normal corporate income tax (19% on taxable income) or personal income tax regime (18% or 32% on taxable income for natural persons, or 19% for entrepreneurs). In addition, the payment of the flat-rate tax is postponed until the building or conversion of a ship is completed.
The European Commission it started looking into the proposed tax incentive for shipyards after Poland notified the measure to the Commission in December 2016. The Commission states that it does not question Poland's right to decide on its tax system. However, under the EU Treaty the Commission has to verify that the tax system respects EU State aid rules and does not selectively favour certain companies over others.
The European Commission furthermore states that at this stage it has concerns that the proposed flat-rate sales tax constitutes so-called operating aid, which uses public funds to relieve shipyards from costs they would otherwise have to bear in their day-to-day activities. Generally speaking, operating aid is not allowed under EU State aid rules, because it distorts competition on the merits without serving any objective of common EU interest. In the present case the Commission is concerned that the aid would harm shipyards in the EU, which are not eligible under the Polish tax scheme. In addition the European Commission states that the aid does not seem to be necessary, given that according to the European Commission there are shipyards in Poland which are able to compete on the market on their own merits.
According to the European Commission this does not mean that Poland cannot intervene in its shipbuilding industry. According to the Commission certain categories of aid, such as aid for research, development and innovation or regional aid, are allowed under EU State aid rules. They are considered to be more effective and to have less distortive effect on competition than operating aid. This is for example the case of the Polish investment aid to SMEs in the shipbuilding sector which were approved on January 15, 2018 by the European Commission. According to the European Commission however, the proposed flat-rate sales tax does not appear to belong to any of these categories.
The European Commission will now investigate further to determine whether its initial concerns are confirmed. The opening of an in-depth investigation gives interested third parties the opportunity to submit comments.
More information will be available on the Commission's competition website, in the public State Aid Register under the case number SA.46981.
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