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43
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43 (138) 2020
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Coping with Covid-19 - the Business Response

Poland’s Financial Shield still not for everyone despite evolution of the mechanism

By Tomasz Mróz, associate partner, Compliance Partners International
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The worldwide SARS-CoV-2 pandemic has severely affected economic systems across all countries. Governments, including Poland’s, are providing financial support solutions to companies which have suffered drop of income as a result of Covid-19.

Poland’s first anti-crisis shield was criticised by business as being too exclusive and was updated to include more beneficiaries. More recently, a revised proposal for a financial shield (complementary to the governmental anti-crisis response) was made for a total amount of 100 billion zlotys, of which 75% will be assigned to micro-, and small- and medium-sized companies, and 25% to large companies with over 250 employees. Additionally, up to 75% of the financing could be redeemed if specific conditions are met.

The main requirement of eligibility for obtaining financing according to this scheme is that income must have decreased by at least 25% in any one month after 1 February 2020, or that delayed payments constituted over 25% of all payments in a given period. The type of support for large companies include cashflow, preference and investment financing. Micro-, small and medium-sized companies may benefit from interest-free loans. In both cases, up to 75% of such loans may be redeemed if conditions regarding continuation of activity and maintaining employment are met. Generally, these updated mechanisms were positively commented on by the market and hailed as a proper anti-crisis shield.

The initial proposal of the Polish government contained specific requirements regarding the beneficial owner which would have excluded from this specific rescue mechanism Polish companies with foreign capital, as only companies whose beneficial owners are tax-resident in Poland could take advantage of it. The only exception was that if a beneficial owner files a commitment that they will switch tax residence to Poland within nine months from obtaining financing, and in case of micro- and small- and medium-sized companies, if they will commit to proceed with specific investments in Poland. The situation under the initial proposal for large companies essentially deprived them from the possibility of obtaining financial support from the government as it was highly unlikely that any corporation’s beneficial owner will move tax residence to Poland. This was highly controversial as all these companies are subject to taxes and all other administrative and social security levies in Poland, and between them employ millions of Polish citizens whose jobs could be at risk.

The original financial-shield proposal was filed at the European Commission for approval, to ensure equal treatment and fair competition standards. Nevertheless, within the European Economic Area this solution proved to be contrary to art. 18 of the Consolidated Version of the Treaty on the Functioning of the European Union (TFEU) providing that any discrimination on grounds of nationality shall be prohibited. This specific requirement was also affecting various provisions of the TFEU regarding distortion of competition, in particular art. 107 which states that “any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market.”

Once the initial proposal was published, many non-governmental organisations including in particular the international chambers of commerce, raised their concerns and filed specific demands to the Polish government and to the PFR (Polski Fundusz Rozwoju or Polish development fund) which will disburse these funds. On 27 April, the European Commission approved this mechanism, and the requirement of beneficial owner was modified.

Consequently, micro-, small- and medium-sized companies’ tax residence should be Polish territory, and the beneficial owner should not be tax-resident in any of the tax havens included in the EU’s list of non-cooperative jurisdictions for tax purposes (2020/C 64/03). On the other hand, the requirement concerning large companies was re-drafted to include companies that have their tax residence in the European Economic Area, are registered in Poland, and their beneficial owner does not have tax residence in any of the non-cooperative jurisdictions (tax havens) for tax-avoidance purposes.

Exceptions from this requirement will be possible if the company and its beneficial owner draws up a commitment to move their tax residence to any country within the European Economic Area within nine months of receiving financial support based on this scheme.

It is important to remark that due to the Brexit withdraw agreement signed on 24 January this year, the United Kingdom (including Northern Ireland) will cease to be a part of the European Economic Area on 31 December 2020, which could pose additional complications to British companies in terms of taking advantage of this scheme.

In any case, the change to the wording of this requirement should be considered as positive and inclusive for the foreign companies which will be now eligible to use PFR financing to remedy the negative consequences of SARS-CoV-2 virus.

More in Coping with Covid-19 - the Business Response:

Polish and UK state aid for business in the face of Covid-19 – a comparative take

By Konrad Kąkol, president of the supervisory board of Dauman Bros. EEIG, advocate

 

Even though it’s far too early to class the effects of the Covid-19 pandemic on the global economy, these will obviously be staggering, as consumption rates fell sharply and certain economic sectors came to a grinding halt. Public aid will be indispensable in ensuring that many businesses, especially micro-entrepreneurs and SMEs, are able to stay afloat. The Polish government is still working on ironing out the creases in new versions of its so-called ‘anti-crisis shield’.

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Although international trade may seem to be only one of numerous sectors affected by the Covid-19 pandemic, disturbances at the initial stage of a trade chain may cause a domino effect on various business activities, with implications for individual lives and for public health.

How quickly can you rewrite your business continuity plans?

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Should multinational companies rewrite their corporate business continuity plans (BCPs) to incorporate global pandemics?  This is a case study of the experiences of PM Group – an international provider of specialist engineering, construction, and project management services.

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