The General Court finds that Polish retail tax does not constitute State aid

On 16 May the General Court annulled a European Commission State aid decision concerning a Polish tax measure for the retail sector (the judgment is available here). The GC concluded that the EC incorrectly considered the tax as a selective measure and, therefore, erred in classifying it as illegal State aid.

The GC’s judgment is a reminder that the EC must carefully define the system of reference when reviewing the State aid implications of tax measures, in order to determine whether measures are selective and also whether they are appropriate to reach the stated objective. Moreover, the GC clearly states that the burden of proof lies with the EC to establish the existence of discrimination between economic operators. 


In September 2016 Poland introduced a tax measure, according to which retailers were liable to pay tax based on their turnover from the sales of goods to customers. The tax rate was progressive in nature and applied to monthly turnover in excess of PLN 17 million (approx. EUR 4 million). The applicable tax rates were 0.8% on the segment of the monthly turnover above PLN 17 million but not exceeding PLN 170 million (approx. EUR 40 million) and 1.4% on the portion of turnover exceeding PLN 170 million.

The EC ordered Poland to suspend the application of the tax and later, in its decision of 30 June 2017, found that the tax constituted illegal State aid. In particular, the EC found that the retail tax was selective because the progressive nature of the rates favoured smaller retail operators. The EC concluded that as no aid had actually been granted (due to the suspension), there was no need to require recovery. Poland appealed the EC’s decision to the GC, which annulled the decision finding that the Polish retail tax had been incorrectly classified as State aid.

The GC’s judgment

There were three grounds supporting the GC’s finding that the progressive turnover tax as envisaged by Poland was not selective and, as a result, did not amount to State aid.

First, the GC held that the EC erred in defining the reference system of taxation. Under EU State aid rules, in order for a tax measure to be considered “selective” it must differentiate between undertakings that are in a comparable legal and factual situation. The benchmark for this comparison is the reference system of taxation. The GC found that the progressive tax system was part of the reference system of taxation applicable to all undertakings and not a derogation from it. As a result, there was no differentiation.

Secondly, the progressive nature of the tax is consistent with the objective of taxation (tax redistribution). In that regard, the GC emphasised that the EC may define the nature and general scheme of a tax system, in place of the Member State, only in exceptional situations.

Thirdly, the GC noted that the EC failed to establish differentiation between retail undertakings in a comparable legal and factual situation in the context of the redistributive objective set by Poland for this measure.

Implications of the judgment

The GC made it clear that a progressive system of taxation does not in itself entail a selective advantage, even if the progression thresholds do in fact favour some economic operators. However, the judgment is case specific and therefore the GC’s conclusions cannot be directly applied to other tax measures.  These will still need to be assessed individually.

It is worth mentioning that the GC carefully examined the three steps of the selectivity analysis, implying that the EC is not constrained by the form-based test (i.e. derogation from the reference system), but is permitted also to conduct an effects-based analysis of the system of taxation, albeit under strict conditions.

The EC may appeal the judgment to the Court of Justice of the European Union. However, an appeal is not suspensory and so Poland is entitled to introduce the retail tax into domestic law in the meantime.