It is not very clear how global concerns, which mainly use cost optimization, would integrate their sub-suppliers at the global level in order to reduce the tax paid only in Poland by a few percentage points – writes Robert Gwiazdowski in the latest column.
I wrote last week that income taxes are better than income taxes. Here is the proof – I hope that the title of Dear Users of Interia intrigued more than scared away.
The state tax revenue function is a first degree linear function:
Wp = Sp x d
d = (p – k)
Wp = Sp x (p – k)
Wp – tax receipts; Sp – tax rate; d – income; p – income; k – costs
As at this point you have not given up reading further, I would like to add that this function should be made simpler:
Wp = Sp x p
A “k” item (costs) is an unlimited number of different eligible items. The taxpayer has to keep two accounts – management and tax, because the main imperative for him is to manage the “k” position. This is completely counterproductive, but necessary and completely legal, although it may be associated with “double-bookkeeping”.
However, this serves not to increase, but to reduce the legal risk that something that is a business expense will be deducted from the “k” by the tax authorities. Therefore, it is necessary to eliminate “k” – in order to reduce the costs of the taxpayer and the state and to exclude legal risks on the part of the taxpayer, which also have their “price” and must be (and is) included in the price of products and services.
There are five basic charges against income tax:
(i) there will be massive concealment of revenues;
(ii) there will be massive vertical concentration of companies to avoid the next steps of taxable sales and outsourcing will disappear;
(iii) some companies will fail because their margins are lower than the planned tax;
(iv) goods and services produced in Poland will become more expensive and therefore uncompetitive, which will suffer the Polish economy;
(v) the European Commission will not agree to this solution.
Let us start with the fifth plea. If the European Commission does not agree, there will be no problem with the other four allegations. However, it is not very clear why she would disagree, since: (i) direct taxes are not regulated by EU law, (ii) such a tax already exists in Poland – it is a flat-rate tax on recorded revenues.
As for the first objection – if there is mass concealment of revenues, then the second, third and fourth charges will not materialize. When you pay income tax (income minus costs), you can manipulate costs (which is commonly done) and income (which is not done).
Of course, revenues can be hidden – but this is a common crime, and not any tax optimization. If costs cannot be manipulated (because they will not be included at all), revenues will have to be manipulated. But it is more difficult and it will certainly not be possible to discuss with the tax office whether it was legal or not. Unlike costs, which are constantly discussed, something was or was not.
Anyway, including something as cost is only a mistake. At most, you will pay tax with interest. Hiding income is always a deliberate and illegal act. What is the difference if the companies do not pay income tax or if they do not pay income tax? Income tax is not good for those who do not pay income tax today, but for those who do.
As for the second objection – if there is a massive vertical concentration of companies, the first, third and fourth objection will not materialize. It is not very clear how global companies, which mainly use cost optimization, would integrate their sub-suppliers on a global level in order to reduce the tax paid only in Poland by a few percentage points. At the rate of this tax of 1.5 percent. the entire operation, due to management ambiguity, will discourage such action. To save 1.5 percent. costs of any department in the enterprise would not be outsourced. Everyone who has ever done it knows it.
As for the third objection – that some companies will collapse because their margins are lower than the planned tax – please remember that this margin applies to income tax, where part of the margin is hidden in high operating costs.
As for the fourth objection – that by introducing income tax, goods and services produced in Poland will become more expensive and uncompetitive, it should be emphasized that if this tax replaced income tax, the costs of taxpayers’ compliance with tax obligations and the implementation of IFRS standards will drop dramatically. These are the costs of hundreds of millions of zlotys. Secondly, we are talking about a hypothetical price increase of a few percent versus much higher production costs in all other countries except Asia and Africa. But then there are transportation costs.
So let me propose an iconoclastic thesis that, for example, such Biedronka (often given as an example) will not carry out vertical integration – as some tax advisers assure. He will not buy cutters, he will not hire fishermen, he will not buy fish processing plants, a producer of a line for packing fish in cans, a steel plant producing sheets for these cans, or an ore mine, which produces steel for these cans in order to sell them at home. stores canned mackerel and avoid paying income tax at every stage of mackerel production!
And let me make a second thesis that Jeronimo Martins (owner of Biedronki) will not sell mackerel cans in them to pay only 1.5 percent. tax on income from commission brokerage. And even if Biedronka did so, the producer of canned fish will pay 1.5 percent. from the commission price received from Biedronka. And she will not run a commission shop selling fish cans. The manufacturer of these cans is unlikely to be bought either – not to mention the steelworks that produce sheets for these cans.
Robert Gwiazdowski, lawyer, chairman of the Program Council of Centrum im. Adam Smith