Social partners' tax exemption retained

Download article in original language : PL0408103NPL.DOC

In July 2004, the Polish government dropped plans to subject the income of trade unions and employers' organisations to corporate income tax. The social partners welcomed the retention of their tax exemption.

It was announced in 2003 that Poland's corporate income tax legislation would be amended. One effect would be to oblige a new category of organisations to pay tax on their incomes - a category that included trade unions and employers' organisations (PL0406103N). After almost a year of pressure on the Ministry of Finance brought to bear by the social partners in the hope that they could retain their exemption from corporate income tax, on 2 July 2004, Andrzej Raczko, the Minister of Finance wrote to the Minister of the Economy and Labour, Jerzy Hausner, stating that 'the Ministry of Finance is inclined to accede to the requests submitted [by the social partners] and to extend the vacatio legis intervening before the legislation eliminating exemptions for trade unions and employers' organisations comes into force' (soon afterwards, Mr Raczko ceased to be Minister of Finance).

The social partners were not seeking an extension of the 'vacatio legis'- ie the period between the new tax legislation being adopted and coming into force - but a return to the status quo, ie to the tax exemption applying to trade unions and employers' organisations with reference to their core activities as set out in their charters. After several days of consultations, the Ministry of Finance (Ministerstwo Finansów, MF) decided to accept this request from the social partners. On 14 July, the Ministry submitted to the social partners and to other ministries the draft of a legislative Act amending existing rules concerning corporate income tax.

Under the proposed amendments, Chapter 4, article 17.1 of the Act regarding corporate income tax, which covers specific exemptions for particular entities, will be augmented with new items 39 and 40, reading as follows:

  • '39. The income of trade unions, social, vocational and farmers' organisations, agricultural chambers, employers' organisations and political parties operating on the basis of other statutes - in their portions earmarked for core activities, with commercial activity excluded.'
  • '40. Membership dues of members of political, social, and vocational organisations - in their portions not earmarked for commercial activity.'

In its justification for this proposal, the Ministry of Finance maintains that 'in most cases, the entities covered by these exemptions do not have income. Their activities do not focus on securing income, but on the pursuit of their core activities approved by their social constituencies. This applies, among other entities, to trade unions, political parties and social organisations.'

The draft has met with the whole-hearted approval of the social partners. The only point which may give rise to questions is the fact that the impact of the proposed legislation on the state budget has not been analysed. While some of the organisations and institutions benefiting from the 'entity-specific' exemption from corporate income tax were subject to analysis, there has been no mention of the income which the state may either obtain or lose, depending on the ultimate fate of the exemption.

Some commentators have suggested that the pressure applied by the social partners would have been to no avail were it not for the fact that the incomes of political parties would also have been taxed if the exemption were eliminated. Political parties and their members may have pushed for the amendments at least as vigorously as the social partners. Whatever the case, the fact that trade unions and employers' organisations will not be taxed leaves them better placed financially to continue their activities.

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