Poland targets foreign companies with taxes

Poland’s ruling Law and Justice Party (PiS) has implemented protectionist banking and retail taxes targeted at large foreign companies, such as Santander and Tesco Plc.

Currently the largest party in the country’s parliament, the nationalist and Eurosceptic PiS has been making controversial changes to the constitutional court and media law since being elected in 2015.

The retail tax requires large retailers, mainly foreign supermarkets, to pay a monthly levy based on their turnover. The European Commission challenged the taxes for violating EU rules on equal treatment but PiS said the changes “remove privileges” and “[give] small domestic enterprises a fighting chance”.

However, rating agency Moody’s warned that this could “wipe out the operating profit” of Tesco’s and other companies’ Polish operations. Moody’s downgraded the outlook on Polish government bonds to ‘negative’. In early 2016, Warsaw’s stock exchange index fell 29% to its lowest level since 2009.

“The situation brings significant uncertainty to the economy, which impacts inbound FDI,” said Krzysztof Kalicki, chief executive of Deutsche Bank, Poland.

For the first time in five years, Poland is no longer the most attractive destination among German investors, according to the German-Polish Chamber of Commerce. However, with the ink still drying and Poland’s growth still attractive, the longer-term effect of PiS’s policies on FDI remain to be seen.