Year in Review – Polish Law in 2016
Share deals/corporate restructurings affected by the new regulations on agricultural lands: The regulation came into force on 30 April 2016 and significantly restricted transferability of agricultural land, whether the transfer results from an asset or a share deal, or any other event resulting in change of the owner or the direct owner’s corporate holding structure. Now, the sale of shares in a company which owns agricultural land in Poland is subject to the pre-emptive right of the State Agricultural Agency. The restrictions also apply to the transfer of agricultural land or shares in a company directly holding agricultural land as a result of any other event, such as in-kind contribution, merger or demerger. In each and every such case, the State Agricultural Agency has a subsequent buy out right. In addition, before execution of the pre-emptive right the Agency is entitled to perform a due diligence review of the books and records of the company holding the agricultural land and shares which are intended to be transferred. A transaction executed contrary to this requirement is deemed to be invalid. Currently, a key issue in each share deal/corporate restructuring in Poland is to determine whether the target company is the owner of any agricultural land in Poland.
Reforms to foreigners acquiring agricultural or forest land: On 2 May 2016, foreigners who are citizens or entrepreneurs in countries party to the agreement on the European Economic Area or the Swiss Confederation no longer require the consent of the Minister of Internal Affairs to acquire agricultural land or forest land. However, as a result of the agrarian reform, acquisition of agricultural land is still controlled by the state. It is also limited, in particular by a right of first refusal for the Agricultural Property Agency. This applies to any agricultural land, irrespective of its area, and to shares and stocks of commercial law companies which are owners of agricultural land. Also, it is now only individual farmers who have the right to acquire agricultural land of an area of 0.3 ha or more.
Private forests fall under State’s buyout right: As of 2 May 2016, acquisition of private forests is limited by a right of buyout and right of first refusal reserved for the benefit of the State Treasury represented by the State Forests.
New tax on banks and other financial institutions: The Banking Tax Act has come into force imposing a tax on the assets of financial institutions such as domestic banks, branches of foreign banks and branches of credit institutions. The taxable amount is the excess of total assets of the taxpayer over certain amounts stipulated in the Act. The rate of tax applied to the taxable base is 0.0366%per month (0.44%annually).
Suspension of retail sales tax: The new law obliging retailers operating in the Polish market to pay an additional tax on retail sales was introduced in September. However, the European Commission then opened an in-depth investigation into Poland's tax on the retail sector requiring Poland to suspend the application of the tax until the Commission concludes its assessment. The retail sales tax is currently suspended until 2018.
General anti-avoidance regulations: A General Anti-Avoidance Rule (GAAR) came into force on 15 July. GAAR gives the Ministry of Finance rights to refuse, in tax computations, an artificial arrangement with tax savings as its principal purpose if the tax savings are not compliant with the provisions and purpose of tax laws. Arrangements investigated under GAAR are compared to arrangements that could be made by a reasonable taxpayer following market standards which are the basis used to assess the tax consequences for a taxpayer in a case which applies GAAR.
New market abuse regime: As of 3 July 2016 in all EU countries, including Poland, new regulations on market abuse (MAR) became effective. MAR is a new market abuse regulation that establishes a common regulatory framework on insider dealing, the unlawful disclosure of inside information and market manipulation (market abuse); it also introduces measures to prevent market abuse to ensure the integrity of financial markets in the EU and to enhance investor protection and confidence in those markets. MAR introduces a new regime, inter alia, for market sounding, delay of disclosure of inside information, managers’ transactions and presents a new form of the insiders’ list.
Trademarks registration: Recent changes to Polish trademark registration procedures have resulted in their now being much closer to those in the EU, as Poland switched to the “opposition system” of trademark registration. Previously, trademark registration required an ex officio examination of both absolute and relative grounds for refusal (in particular, the prior rights of other entities). Now, the Patent Office will only deal with real conflicts, as it will only examine the relative grounds if the prior owner files an opposition. Given the above, and the fact that the opposition period has been significantly shortened (3 instead of 6 months), trademark holders should consider constantly monitoring new applications that potentially infringe their most valuable brands and swiftly react to any such attempts.
Consumer-oriented amendment to competition law: An amendment enhancing consumer protection, especially in the financial services market, came into force in April 2016. It introduced the misselling of financial services as an infringement of consumer collective interests. Consequently, the Polish Competition Authority (PCA) can now control clauses in standard consumer agreements and classify them as abusive, prohibiting their further use. Under former regulations, the Court of Competition and Consumer Protection in judicial proceedings, was in charge. The PCA can impose a fine of up to 10% of annual turnover if a clause is found to be abusive. Other amendments include the introduction of a mystery shopper tool and the ability to publish warnings in the press and television if it is reasonably suspected that an undertaking is violating consumer rights.
Digitalisation of civil proceedings: The Code of Civil Procedure was amended by way of an act dated 10 July 2015 and came into force on 8 September. The changes were designed to improve the efficiency of courts by introducing a set of procedural improvements as the next step in the process of digitalisation of civil proceedings.
The act gives the addressee the possibility of submitting court letters electronically via the ICT electronic system. An attorney’s statement that a copy of a pleading submitted to the court has been dispatched to the other party or sent by registered mail is sufficient - it is no longer necessary to attach the confirmation of dispatch.
The court may summon the parties, witnesses, expert witnesses or other persons in a manner the court finds the most expedient (e.g. via e-mail, telephone etc.), if it is essential to accelerate the examination of a case. The new solution authorises the judge to order that a public session be conducted remotely through the use of technical equipment. The court may also give its consent for a party to record the session with the use of sound recording equipment.
Major changes in employment law introduced in February 2016: The new regulations on fixed-term employment contracts, garden leave and family-friendly rights came into force on 22 February 2016. Currently, the use of fixed-term employment contracts has been limited to three consecutive contracts, the total duration of which cannot exceed 33 months. Also, the new rules set identical notice periods for both fixed-term and permanent employment contracts.
The new law has formally introduced the garden leave concept into Polish labour law allowing employers to release employees from the obligation to work during the notice period, even without an express garden leave clause in the employment contract.
In the field of new family-friendly rights, both parents are now eligible to take advantage of these entitlements, even if one of them does not have employee status, provided that he/she pays sick leave contributions into the social security system.
Year to Come – Polish Law in 2017
Morawiecki’s plan - new technologies and innovation: In 2016, Deputy Prime Minister Mateusz Morawiecki presented a plan for responsible development in Poland, identifying five pillars of the new development model, including the development of innovative companies. Aviation, defence, chemical, automotive, furniture, shipbuilding, IT and food processing have been marked as Polish industries having a chance of achieving a leading position in the global market. The plan puts great emphasis on the development of new technologies and innovation, increased expenditure on R&D, supporting digitalisation of services, including those provided by the public authorities plus reducing fiscal burdens for innovative projects. The Morawiecki’s plan may play a leading role in the direction of planned changes in law for the coming year.
Stricter rules on consumers’ mortgage credit on the way: The regulation of mortgage credit will implement provisions of the EU Directive of 4 February 2014, on credit agreements for consumers relating to residential immovable property. New rules on concluding mortgage credit agreements, credit providers’ information obligations, credit intermediaries, supervision for loan institutions and rules applicable to providing such services will be imposed. It will result in restrictions on selling services additional to the credit (e.g. cross-selling insurance products) and increasing costs for earlier repayment. The limitations of fees for the credit intermediaries and the information obligation will be significantly more burdensome to the credit providers. This new law on mortgage credit is expected to ensure a higher level of consumers protection, reduce the information asymmetry between professionals and their clients and promote fairness and transparency of consumer credit agreements.
New ‘usury’ rules in mortgage credits: The new restrictions on services of consumers credit providers will tighten criminal penalties for usury. It will implement restrictions on the loan activity in the civil law in general. The chain of amendments to the Criminal Code, Civil Code, Banking Law and Consumer Credit Act include i.e. limits for the maximum sum of the security and for the sum that can be enforced, restrictions on maximum non-interest credit costs and information obligations of credit providers.
CIT (corporate income tax) down to 15% for certain categories of taxpayers: Low taxpayers with sales revenues (inclusive of VAT) of the equivalent of EUR 1.2m or less and taxpayers launching new businesses for their first tax year will benefit from 15% CIT (instead of the regular 19% rate).
Selected investment funds excluded from CIT exemption: Close-ended investment funds will no longer benefit from CIT exemption on certain types of income (such as income derived from participation in profits of Polish and foreign tax transparent entities). Other funds (open-ended investment funds, special open-ended investment funds and similar foreign investment funds) still can enjoy full exemption.
List of changes to VAT Act on the way: The changes, among others, provide for return of VAT sanctions, detailed verification of newly registered taxpayers, an obligation to submit declarations in electronic format for some entities and a tightening of liability for tax offences. There will be a return of sanctions withdrawn in 2008 (additional tax liability of 30% or 20% of the understatement of liabilities/over-recovery in certain circumstances). Option to file quarterly VAT declarations for some entities will be eliminated.
New transfer pricing regulationsB A number of important changes and new duties for documenting transactions with related parties include new, extended TP documentation including a master file, a local file, a benchmarking study, a representation that the TP documentation has been prepared and a statement including related party transactions. Two parties will be considered to be related on account of equity ties only if one holds an equity interest in the other of no less than 25%, instead of 5%.
Recommendation Z for banks: The Polish Financial Supervision Authority is to implement a new recommendation on corporate governance principles for banks (Recommendation Z). Its aim is to instil good practices, reduce the risks related to the banks’ activity, increase their resistance to unfavourable market changes and strengthen the overall stability of the banking sector. It focuses mainly on the qualifications of the supervisory board and directors, risk management system, outsourcing rules and dividend policy. The recommendation is currently at the consultation stage with banks.
Expected changes to the construction law: Some planned construction works will no longer require a building permit, but rather notification to the relevant authority (i.e. redevelopment of a building constructed with a building permit). Others will no longer require notification to the relevant authority. The period reserved for the authority to issue its objection against the notification of planned construction works will be shortened from 30 to 21 days. This will speed up the commencement of planned works.
Introduction of REITs: The Polish Minister of Finance is working on a draft act on companies investing in the real estate sector – REITs (Real Estate Investment Trust). The Polish REITs will be public companies introduced and admitted to the Polish regulated trading system (i.e. the Warsaw Stock Exchange) with a minimum PLN 60 mln share capital and investments either directly or indirectly concentrated on real estate (at least 70% of all assets). This new investment vehicle may be considered as an alternative to closed-end investment funds (currently very popular among foreign investors when investing in real estate in Poland) that may appear to be a less profitable option for foreign investors after the new tax law was enacted on January 1, 2017.
New category of a capital company: The Ministry of Development is currently working on draft legislation for a new type of a capital company: the simple joint-stock company (Prosta Spółka Akcyjna). This new vehicle is intended to be more flexible than existing joint-stock companies, in particular with respect to its share capital requirement (proposed minimum share capital amounts to symbolic PLN 1), establishment and liquidation procedures. In particular, this new vehicle might prove to be attractive for start-ups.
Upcoming technological revolution in the commercial register: According to the draft legislation currently being reviewed by the Polish Parliament, the commercial register will be subject to a technological revolution. Contrary to the current rules where the correspondence and exchange of documents with the registry courts (in charge of maintaining the commercial register) is substantially in written form, the draft provides that all applications to the registry courts will be submitted electronically. The plan is to introduce the change on June 1, 2017.
Personal data protection changes: The EU General Data Protection Regulation (the “GDPR”), adopted in 2016 will come into force on 25 May 2018 and will significantly change the landscape of data protection in the EU, including Poland. GDPR is directly applicable in Member States, but it will also require significant changes to national laws. The draft of the Polish bill is expected in the first half of 2017. The GDPR is a revolution for data privacy standards. Businesses have already identified certain issues that will require their greatest attention in the context of the upcoming changes. Additional obligations for data controllers, new rights of data subjects, privacy impact assessments, privacy-by-design and privacy-by-default approaches are the most probable areas of controversy under the new laws.
Transposition of Antitrust Damages Directive: Work on implementation of the Directive on Antitrust Damages Actions “ADD” (2014/104/EU) continues, and the Polish legislation is to be adopted in 2017. It will embrace all actions for damages, whether individual or collective. In its major part, the draft Polish act transposes the provisions of the ADD, but in the case of its application it extends beyond the Directive. Under the Polish act, a rebuttable presumption that an infringement of competition law causes harm is to apply to both anticompetitive agreements and the abuse of a dominant position.
Fraudulent misuse of contractual advantage: The Act on Countering Fraudulent Use of Contractual Advantage in Trade of Agricultural and Food Products (“PCA”) is expected to come into force in mid-2017. The fraudulent use of contractual advantage is to be understood as, among others, unjustified contract termination, a unilateral right to withdraw from a contract or the unjustified extension of a payment term. The PCA will have the power to initiate proceedings in such cases ex officio and in case of infringement, it will be entitled to impose a fine of up to 3% of annual turnover.
Extended deadline to appeal against termination notice and new regulations on internal HR policies: The amendments to the Labour Code, which came into force on 1 January 2017, allow the employee to appeal against termination with an extended deadline: 21 days from the present 7 days in the event of termination with notice and 14 days in the event of immediate termination. Also, the obligation to introduce work and remuneration regulations by the employer is changed and it is now imposed on employers employing at least 50 employees (20 employees before).