GSK waves the red flag
The case could also have great significance for other firms also facing related legal battles with the tax authorities. GSK's claim that the career history of one judge presiding over their legal proceedings denies the company its right to a fair trial, if upheld by the European courts, could also raise the profile of the general problem of corruption within the local judiciary.
The claim regards the involvement of judge Ewa Wrzesińska-Jóżków in their case at the Supreme Admini-strative Court (SAC), regarding the alleged inflation of customs duties. GSK's compliant is that she is not in a position to issue impartial judgements on this issue, as in her previous position as vice-president of the Customs Office she was directly responsible for the interpretation of the customs legislation that she is now required to examine in various cases that affect a considerable number of importers. GSK's request last January that she be removed from the case was rejected by the national courts, hence GSK is now appealing to both the Constitutional Tribunal and the European Tribunal of Human Rights.
"It seems clear that this judge should not be involved in the case," says Agnieszka Deeg-Dąbrowska, an international lawyer at Cameron Mckenna. "The main obstacle for GSK, however, is that if exactly the same claim is being put to the European Tribunal as to the Constitutional Tribunal, the Human Rights Tribunal may decide not to hear the case until a judgment has been passed by the domestic Constitutional Tribunal," she says. The European Human Rights Tribunal requires that plaintiffs exhaust all local legal channels before appealing to the EU courts. Past experience proves, meanwhile, that exhausting all local legal channels can be a very lengthy process.
"However, what is not yet clear is whether the claim is exactly the same or not," Agnieszka Deeg-Dąbrowska goes on to add. GSK's claim to the European Tribunal is based on Article VI of the human rights convention, which holds that everyone has the right to objective justice within reasonable time. Claims to the constitutional tribunal, on the other hand, have to show the unconstitutionality of the law.
If upheld by the European Tribunal, however, GSK's case could have enormous significance in reopening cases for other pharma-ceutical importers in a similar position. It could also mean large fines for the government.
"Considering the enormity of the potential damage caused to GSK by the exposure involved, the fines demanded from the state are likely to be very high," she says.
The case could also raise the profile of corruption within the judiciary in general, which, according to Julia Pitera, managing director of Transparency International Polska, is a problem, the proportions of which are hard to establish due to an institutional culture of secrecy within the judiciary.
"The corporation of judges is very unwilling to discuss the issue of corruption, to reveal any information, or to take any action, even against judges whose impartiality is gravely in question," Pitera explains, citing the example of Judge Wielkanowski, who, despite proceedings regarding false witness arising from his relations with the mafia proven in 2000, continues to be employed by the judiciary.
GSK's case at the SAC regards charges of alleged inflation of customs margins. Similar charges affect several other pharmaceutical importers that, as the Business Journal reported in January, have undergone government investigation by the tax office on the basis of laws already declared unconstitutional by the Constitutional Tribunal.
Since 1993, with the full knowledge and blessing of the government, drug importers have followed a practice of declaring the customs value of drugs obtained at discount prices at the full rather than the discount value. Many of the drugs imported by pharmaceutical companies are refunded by the government, while the law at that time prevented pharmaceutical importers from establishing profit margins outside the then government fixed level of 14.3 percent of the drug's value, shared by all those involved in the distribution process. Therefore, on the suggestion of the then government, in order to make a profit, importers initiated a practice of declaring the customs value of drugs at an amount higher than the producer's price at that time, thus increasing the value of the 14.3 percent margin. This practice was condoned by subsequent governments which, given the resultant higher incomes from VAT, also made a good profit from the arrangement.
Yet an ordinance introduced by the government in May 2000 made the practice of inflating profit margins illegal. The 2000 ordinance was, in turn, declared to be unconstitutional by the Constitutional Tribunal in 2001. Nevertheless, the tax investigation office (UKS) has initiated auditing procedures into 80 pharmaceutical importers on the basis of that very ordinance, with the aim of determining the sums that these importers allegedly owe the State Treasury for illegally inflating the customs value of imported drugs.
But since the whole affair is beginning to look increasingly unrewarding for the government that instigated it, some have suggested that GSK's move may be calculated more as a challenge intended to hurry the authorities into dropping the charges rather than anything else. The government instigated offensive begins to look increasingly short of fuel. The commissioner for enlargement at the EU Commission, has not minced his words in recommending that the government drop altogether charges against the 80 or so importers involved. Which, in Deeg Dąborwska's view, may be what does in fact happen. This not least because, as she reveals, despite palm-rubbing assertions by the health-minister-before-last, Leszek Sikorski, who gleefully equated the total zł.5 billion involved with the sum of state hospital debts, "there are a number of proceedings going on, all of which are very time consuming and complicated, but may in the end involve no money for the government."
A second motive for GSK's throwing down of the gauntlet now could be to minimize damage to the company's reputation by synchronizing the company's legal exposure in Europe with that in the USA, as New York City last week accused GSK of fraud in two lawsuits that allege the UK drug maker improperly stalled lower-priced generic competition for two drugs by frivolous patent maneuvers.
The claim regards the involvement of judge Ewa Wrzesińska-Jóżków in their case at the Supreme Admini-strative Court (SAC), regarding the alleged inflation of customs duties. GSK's compliant is that she is not in a position to issue impartial judgements on this issue, as in her previous position as vice-president of the Customs Office she was directly responsible for the interpretation of the customs legislation that she is now required to examine in various cases that affect a considerable number of importers. GSK's request last January that she be removed from the case was rejected by the national courts, hence GSK is now appealing to both the Constitutional Tribunal and the European Tribunal of Human Rights.
"It seems clear that this judge should not be involved in the case," says Agnieszka Deeg-Dąbrowska, an international lawyer at Cameron Mckenna. "The main obstacle for GSK, however, is that if exactly the same claim is being put to the European Tribunal as to the Constitutional Tribunal, the Human Rights Tribunal may decide not to hear the case until a judgment has been passed by the domestic Constitutional Tribunal," she says. The European Human Rights Tribunal requires that plaintiffs exhaust all local legal channels before appealing to the EU courts. Past experience proves, meanwhile, that exhausting all local legal channels can be a very lengthy process.
"However, what is not yet clear is whether the claim is exactly the same or not," Agnieszka Deeg-Dąbrowska goes on to add. GSK's claim to the European Tribunal is based on Article VI of the human rights convention, which holds that everyone has the right to objective justice within reasonable time. Claims to the constitutional tribunal, on the other hand, have to show the unconstitutionality of the law.
If upheld by the European Tribunal, however, GSK's case could have enormous significance in reopening cases for other pharma-ceutical importers in a similar position. It could also mean large fines for the government.
"Considering the enormity of the potential damage caused to GSK by the exposure involved, the fines demanded from the state are likely to be very high," she says.
The case could also raise the profile of corruption within the judiciary in general, which, according to Julia Pitera, managing director of Transparency International Polska, is a problem, the proportions of which are hard to establish due to an institutional culture of secrecy within the judiciary.
"The corporation of judges is very unwilling to discuss the issue of corruption, to reveal any information, or to take any action, even against judges whose impartiality is gravely in question," Pitera explains, citing the example of Judge Wielkanowski, who, despite proceedings regarding false witness arising from his relations with the mafia proven in 2000, continues to be employed by the judiciary.
GSK's case at the SAC regards charges of alleged inflation of customs margins. Similar charges affect several other pharmaceutical importers that, as the Business Journal reported in January, have undergone government investigation by the tax office on the basis of laws already declared unconstitutional by the Constitutional Tribunal.
Since 1993, with the full knowledge and blessing of the government, drug importers have followed a practice of declaring the customs value of drugs obtained at discount prices at the full rather than the discount value. Many of the drugs imported by pharmaceutical companies are refunded by the government, while the law at that time prevented pharmaceutical importers from establishing profit margins outside the then government fixed level of 14.3 percent of the drug's value, shared by all those involved in the distribution process. Therefore, on the suggestion of the then government, in order to make a profit, importers initiated a practice of declaring the customs value of drugs at an amount higher than the producer's price at that time, thus increasing the value of the 14.3 percent margin. This practice was condoned by subsequent governments which, given the resultant higher incomes from VAT, also made a good profit from the arrangement.
Yet an ordinance introduced by the government in May 2000 made the practice of inflating profit margins illegal. The 2000 ordinance was, in turn, declared to be unconstitutional by the Constitutional Tribunal in 2001. Nevertheless, the tax investigation office (UKS) has initiated auditing procedures into 80 pharmaceutical importers on the basis of that very ordinance, with the aim of determining the sums that these importers allegedly owe the State Treasury for illegally inflating the customs value of imported drugs.
But since the whole affair is beginning to look increasingly unrewarding for the government that instigated it, some have suggested that GSK's move may be calculated more as a challenge intended to hurry the authorities into dropping the charges rather than anything else. The government instigated offensive begins to look increasingly short of fuel. The commissioner for enlargement at the EU Commission, has not minced his words in recommending that the government drop altogether charges against the 80 or so importers involved. Which, in Deeg Dąborwska's view, may be what does in fact happen. This not least because, as she reveals, despite palm-rubbing assertions by the health-minister-before-last, Leszek Sikorski, who gleefully equated the total zł.5 billion involved with the sum of state hospital debts, "there are a number of proceedings going on, all of which are very time consuming and complicated, but may in the end involve no money for the government."
A second motive for GSK's throwing down of the gauntlet now could be to minimize damage to the company's reputation by synchronizing the company's legal exposure in Europe with that in the USA, as New York City last week accused GSK of fraud in two lawsuits that allege the UK drug maker improperly stalled lower-priced generic competition for two drugs by frivolous patent maneuvers.
