JTT hits back at Wroclaw Police charges that it avoided VAT
After being accused of tax fraud two weeks ago, Poland's second largest computer producer, JTT Computer, launched a counter-attack last week, charging the Wroclaw Voivodship Police spokesman with slander.
"The press spokesman gave out false information that is harmful to us (and) that's why we pressed charges," said Blazej Miernikiewicz, spokesman for JTT in Wroclaw. "The spokesman permitted himself to hand out a verdict before the court did and that's illegal."
While the company brought charges against the press spokesman last week, it has not yet launched a formal civil case. Having informed the Public Prosecutor's Office that a possible crime was committed, JTT now expects that office to launch an official investigation, Miernikiewicz said.
Storm clouds burst on JTT two weeks ago, following the issuance of a police statement in Wroclaw that the Polish computer giant evaded paying zl. 7 million ($1.7 million) in value-added tax (VAT) on computers earmarked for schools around Poland. To avoid paying VAT, JTT exported the computers to companies in the Czech Republic and Germany, and then imported the computers back to Poland.
Goods imported to Poland for educational purposes are excluded from VAT. By sending the computers on a round-trip excursion, JTT got by without paying VAT on approximately zl. 25 million ($6.1 million) worth of computer hardware. According to Wroclaw police, that meant the company deprived the national coffers of upward of zl. 7 million ($1.7 million). "One of the largest computer companies in Poland robbed the state," said Slawomir Cisowski, press spokesman for the Voivodship Police Command in Wroclaw in a written statement. "The (company) president and four employees committed a series of crimes and caused losses to the national budget valued at more than zl. 7 million."
While the statement does not specifically name JTT, fingers were quickly pointed in the company's direction. Cisowki's statement makes clear that the company in question is Wroclaw-based and one of the two largest computer companies producing PCs and other IT equipment in Poland. With sales of zl. 390 million ($121.88 million) in 1998, JTT is the second largest computer hardware producer in Poland. Optimus holds the No. 1 slot, having reported revenue of zl. 610 million ($190.63 million) in 1998, said Benita Mikolajewicz, an equity analyst with ING Barings.
In its counterattack last week, JTT refused to admit any fault in its handling of the VAT issue. Admitting that computers destined for Polish schools had taken an international route before landing in classrooms here, JTT last week said that it had not broken any laws, but merely used loopholes in the existing tax code to avoid incurring the charges.
International accounting firm Ernst & Young last week backed JTT's position. In a legal opinion prepared for the computer company, the accounting firm asserted that the transaction was legal. "Each individual element of the transaction was admissible and conducted in conformity with the law currently in force or the guidelines set by the tax authorities and did not result in reducing the amount due the State Treasury," the written statement said.
Moreover, JTT stated that it did not benefit by not paying VAT.
"Our company did not benefit from these operations," Miernikiewicz said. "We didn't make money on the VAT, not one zloty."
The real beneficiary was the State Treasury and the Polish education system, which was able to purchase cheaper computers, JTT said. By sending the computers abroad first, the company avoided losing to foreign companies, which would have been able to supply hardware at prices that did not include the 22% VAT. While the state budget did not take in zl. 7 million in VAT, it did receive benefits in the form of employment for the production of computers in Poland and in taxes that JTT and other Polish producers pay to national coffers, the firm said.
"If we didn't do this, all of these tenders would be won by foreign companies who have a handicap (in the form of VAT tax exemption on goods imported for educational purposes)," Miernikiewicz said. "That would mean real losses for the State Treasury."
The computer hardware market in Poland is worth $1.25 billion a year, according to ING's Mikolajewicz. While this figure includes sales of hardware by foreign suppliers, the bulk of the figure is made up by Polish companies. In addition, Poland's top three hardware producers, Optimus, JTT and NTT, employ more than 1,000 people in factories scattered around the country.
Some politicians and officials said last week that the goal is to get the greatest number of computers into Polish schools for the least money not how VAT is paid. With a ratio of one computer per 40 students, the Polish education system falls well below IT infrastructure standards in the United States and the rest of Western Europe, according to the Education Ministry. Children have the easiest access to computers at school in the United States, where there is one computer for every two students. Ten children have to share one computer in England, while in Sweden, one computer serves six school children.
In the past two years, 3,300 computer workshops with 10 computers each have been set up in schools around Poland as part of an Education Ministry push to raise standards. If Polish companies had not gotten around VAT requirements, the state would have 660 fewer computer workshops than it obtained under its agreement with JTT, said Grazyna Staniszewska, a Freedom Union (UW) deputy who heads the Sejm's education committee. "One-fifth of the number of computers would have been purchased," she said. "This is enormously significant. Education is always lacking money."
That computer companies were sending equipment on an international odyssey was no secret to lawmakers or the ministry, she said. "This concerns all companies assembling computers in Poland this isn't just a problem of JTT," Staniszewska said. "There was no surprise, I knew it was happening."
The crux of the problem lies in the law's incongruities; the law slaps VAT on products assembled in Poland but exempts imported computers from the tax if they are used for educational purposes, Staniszewska said. The storm around JTT will finally put pressure on the Education and Finance Ministries to amend the law, lawmakers and industry watchers said last week.
Two weeks ago, the Education Ministry announced a zl. 100 million ($25.4 million) tender to supply 2,400 computers to schools across Poland. "If we have to pay VAT, only 1,900 (students) will get computers," Staniszewska said. "That would be an enormous defeat for this program."
