Investors punished by taxes...
The paper contains thirty ideas meant to make foreign investors' lives easier, the most important of which seems to be the completion of the restructuring of government agencies for foreign investment. The tax bill, on the other hand, contains one sentence that, according to experts, violates European Union law and is against the country's economic interests.
"It is quite clearly a serious legislative mistake," says Mirosław Barszcz, tax advisor at PricewaterhouseCoopers (PwC). "The proposed law makes VAT tax rebates on a whole range of services practically impossible." The new law treats offshore outsourcing services performed locally for foreign partners as "services performed abroad." Although the logic of VAT would mean that the services should be taxed in the country of the final beneficiary of such service, the law lacks a mechanism that would make rebates possible. This means that the costs of the services would rise by 22 percent in comparison with other countries.
The companies likely to be affected by the law include Accenture, which runs a financial and accounting outsourcing center in Łódź. The firm's spokesman seems, however, unconcerned by the negative changes to its tax situation.
"We are not taking any steps in connection with the situation," says Maciej A. Markowski. "Tax rates are not the most important of the factors that determine a country's attractiveness."
Philips, another company affected by the law due to its accounting center set up earlier this year, could not be reached last week. PwC's Barszcz says, however, that he has "no doubt that, had Philips been aware of such a legal change, they would have chosen a different country." He is concerned it may stem the inflow of investment in the sector that has been singled out as promising to be the magnet for FDI in the years ahead in an influential report by McKinsey & Co. The consulting firm estimated that as much as E15 billion could be invested in outsourcing over the next five years.
...Rewarded with promises
Meanwhile, the government accepted a paper proposing an overhaul of the institutional environment for foreign investors. The proposal includes the creation of a single government agency to deal with foreign investors.
Such a recommendation is ostensibly in line with the suggestions made in the McKinsey report. Rafał Antczak, an economist with the CASE independent think-tank, points out that the firm suggested the creation of a "one-stop shop" where newly arrived investors could get all the paperwork done. The Polish Agency for Economic Promotion (PAPG), set to replace the existing institution, would not perform such a role.
"There is clearly potential for attracting medium-sized investors," says Thomas Ruedel, a McKinsey partner. It is, however, precisely this category of investors who lack the resources necessary to tackle corruption and bureaucracy at the stage of setting up the firm.
"The best your country could do to enhance your chances of attracting FDI is to ensure high quality middle-rank civil servants," said Jean Lemierre, president of the European Bank for Reconstruction and Development. That, however, is precisely the area that this country is woefully lacking.
"The government paper does nothing to address these issues," Antczak says. "If the number of permits required to start a business is reduced from twenty to fifteen, it simply isn't going to make a difference." He points out that the country has been failing to attract large investments in recent years and that the level of FDI has been falling. He adds that, "it is easier to win investors' confidence than to regain it."
Antoni Styrczula, the former head of the Polish Agency for Foreign Investment (PAIZ), one of PAPG's predecessors, went on record as saying that he was "pissed off" with the report.
"We filed a similar report with the prime minister as long ago as July last year," he says.
Andrzej Szejna, the minister in charge of foreign investor relations, says that he has little hope for the document to become reality in the near future.
"Nothing in this country is ever done quickly," he said. "I have been working on serious ideas for six months, but I'll be very happy if they are implemented over the next half a year." That is too bad, say analysts, as the ministry's proposals are mostly "necessary, but obvious and very late."
Szejna's propositions include the introduction of the institution of a letter of intent that would guarantee specific forms of support for investors - starting at the investment decisionmaking stage. The document could contain an undertaking on the part of the given investor to spend a certain amount of money or create a specified number of jobs, while the authorities would in return promise a specified form and amount of support.
Other proposed changes include the creation of a network of investment parks, where potential investors would find the necessary infrastructure already in place. Foreign businesses would also be able to find out the details of their tax obligations prior to committing themselves to investment in this country.
In the context of the goings-on with VAT rebates on outsourcing, and the changes made after investors, such as Philips, had already committed to this country, this proposal may sound like an empty promise.
"It is quite clearly a serious legislative mistake," says Mirosław Barszcz, tax advisor at PricewaterhouseCoopers (PwC). "The proposed law makes VAT tax rebates on a whole range of services practically impossible." The new law treats offshore outsourcing services performed locally for foreign partners as "services performed abroad." Although the logic of VAT would mean that the services should be taxed in the country of the final beneficiary of such service, the law lacks a mechanism that would make rebates possible. This means that the costs of the services would rise by 22 percent in comparison with other countries.
The companies likely to be affected by the law include Accenture, which runs a financial and accounting outsourcing center in Łódź. The firm's spokesman seems, however, unconcerned by the negative changes to its tax situation.
"We are not taking any steps in connection with the situation," says Maciej A. Markowski. "Tax rates are not the most important of the factors that determine a country's attractiveness."
Philips, another company affected by the law due to its accounting center set up earlier this year, could not be reached last week. PwC's Barszcz says, however, that he has "no doubt that, had Philips been aware of such a legal change, they would have chosen a different country." He is concerned it may stem the inflow of investment in the sector that has been singled out as promising to be the magnet for FDI in the years ahead in an influential report by McKinsey & Co. The consulting firm estimated that as much as E15 billion could be invested in outsourcing over the next five years.
...Rewarded with promises
Meanwhile, the government accepted a paper proposing an overhaul of the institutional environment for foreign investors. The proposal includes the creation of a single government agency to deal with foreign investors.
Such a recommendation is ostensibly in line with the suggestions made in the McKinsey report. Rafał Antczak, an economist with the CASE independent think-tank, points out that the firm suggested the creation of a "one-stop shop" where newly arrived investors could get all the paperwork done. The Polish Agency for Economic Promotion (PAPG), set to replace the existing institution, would not perform such a role.
"There is clearly potential for attracting medium-sized investors," says Thomas Ruedel, a McKinsey partner. It is, however, precisely this category of investors who lack the resources necessary to tackle corruption and bureaucracy at the stage of setting up the firm.
"The best your country could do to enhance your chances of attracting FDI is to ensure high quality middle-rank civil servants," said Jean Lemierre, president of the European Bank for Reconstruction and Development. That, however, is precisely the area that this country is woefully lacking.
"The government paper does nothing to address these issues," Antczak says. "If the number of permits required to start a business is reduced from twenty to fifteen, it simply isn't going to make a difference." He points out that the country has been failing to attract large investments in recent years and that the level of FDI has been falling. He adds that, "it is easier to win investors' confidence than to regain it."
Antoni Styrczula, the former head of the Polish Agency for Foreign Investment (PAIZ), one of PAPG's predecessors, went on record as saying that he was "pissed off" with the report.
"We filed a similar report with the prime minister as long ago as July last year," he says.
Andrzej Szejna, the minister in charge of foreign investor relations, says that he has little hope for the document to become reality in the near future.
"Nothing in this country is ever done quickly," he said. "I have been working on serious ideas for six months, but I'll be very happy if they are implemented over the next half a year." That is too bad, say analysts, as the ministry's proposals are mostly "necessary, but obvious and very late."
Szejna's propositions include the introduction of the institution of a letter of intent that would guarantee specific forms of support for investors - starting at the investment decisionmaking stage. The document could contain an undertaking on the part of the given investor to spend a certain amount of money or create a specified number of jobs, while the authorities would in return promise a specified form and amount of support.
Other proposed changes include the creation of a network of investment parks, where potential investors would find the necessary infrastructure already in place. Foreign businesses would also be able to find out the details of their tax obligations prior to committing themselves to investment in this country.
In the context of the goings-on with VAT rebates on outsourcing, and the changes made after investors, such as Philips, had already committed to this country, this proposal may sound like an empty promise.
