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Polish Entrepreneurs Demand Legal Stability, Faster Courts, and Limited Pre-Trial Detention in “New Economic Policy”

LAWPolish Entrepreneurs Demand Legal Stability, Faster Courts, and Limited Pre-Trial Detention in "New Economic Policy"

Shortening of economic proceedings to a maximum of six months, simplification of the tax system, greater stability of law and adhering to the vacatio legis, as well as limiting the use of pre-trial detention – these are part of the postulates included in the “New Economic Policy” which was developed in cooperation with the Entrepreneurs’ Council and the Scientific Council of the SME Representative based on surveys conducted among around 400 employers’ organizations. Statistics show that since 2019 there has been a significant increase in the number of interventions by the SME Ombudsman in contentious cases of small and medium sized businesses.

“Regulations created by the Parliament should be simple, easy to interpret, and not cause excessive bureaucracy. We hope that the new Parliament will approach it in just such a way. Moreover, the administration should be obliged from above to respect the Constitution of Business – one of its principles says that what is not forbidden is allowed – and to resolve doubts in legal regulations in favor of the entrepreneur. If the administration adheres to these principles, it will make it easier to conduct business and the budget will also benefit from this,” says Adam Abramowicz, SME Ombudsman to the Newseria Biznes.

The Business Constitution, adopted in 2018 with the aim of reforming and simplifying the regulations on conducting business activity in Poland, introduced a number of important solutions and guarantees for SMEs, such as the principle of resolving doubts in favor of entrepreneurs or the principle of legal stability. However, despite more than five years having passed since the document came into force, the practice of administration often contradicts its content. Particular objections are caused by the way social security inspectors operate – in recent weeks, there has been a lot of noise about the office’s interpretation, which, since January of this year, has blocked many small businesses from benefiting from the relief in the form of the so-called small social insurance (ZUS), as a result of which they may be forced to suspend or liquidate their operations.

Partly for this reason, the respect for the Business Constitution by administrative authorities has become one of the 40 postulates contained in the program document “New Economic Policy”, which was prepared in cooperation with the Council of Entrepreneurs and the Scientific Council at the SME Ombudsman, based on expert opinions and surveys conducted among approximately 400 employers’ organizations. The collection of these postulates was passed on to the new coalition government. One of them was to include the 8% VAT rate for the entire beauty industry, which has already been achieved – Prime Minister Donald Tusk recently announced that this will happen from April 1 this year. Equally important from the SME perspective is now the postulate of introducing a uniform, reduced VAT rate for the gastronomy sector, which the SME Ombudsman and representatives of this industry have already discussed at the Ministry of Finance.

“Also important is the length of proceedings before courts in economic matters, as they drag on for years. We propose that this term really be half a year,” says Adam Abramowicz. “We need to digitize, change procedures so that economic proceedings end quickly, as this is also in the interests of the state budget. At the moment, the possibility of dragging out such proceedings indefinitely means that a small company is often blackmailed by its contractor, such as a large corporation. For example, after performing a service, the contractor says: this needs to be corrected. The company corrects it, and the contractor is still dissatisfied, and in the end proposes that he can pay 90% of the contract, and if not, then the entrepreneur should go to court. In many cases, he sees that he simply has no chance in a clash with the larger entity, so he agrees to its terms. That’s why economic proceedings must be short. They are short in all of Europe, in the whole civilized world, and they also should not last longer than six months in our country.”

In addition to the lengthy proceedings, entrepreneurs also point to its high costs. They are so problematic for SMEs that often – especially for smaller amounts – a company gives up the fight for its money.

The SME Ombudsman emphasizes that in Poland, regulations regarding pre-trial detention, the most severe preventive measure in criminal proceedings, also require changes. In the light of the jurisprudence of both the European Court of Human Rights and national regulations, pre-trial detention should be applied only as a last resort, when other preventive measures are not sufficient. However, the practice is different – in Poland, this preventive measure has been abused for years, and courts almost automatically approve prosecutors’ requests for pre-trial detention. In 2022, they approved 87% of them, and in the case of requests for extending pre-trial detention previously imposed, in recent years they have approved an average of 95% of them – according to the annual report of the Helsinki Human Rights Foundation. It also shows that both the number of people temporarily arrested and the average length of this measure’s application have significantly increased over the last few years. In 2022, the average number of people temporarily arrested was about 60% higher than in 2016.

“At the moment, the same rules apply to economic matters as to ordinary ones, which means that entrepreneurs can be kept in pre-trial detention for a long time. We propose to limit this, as economic matters differ somewhat from common crimes. In such cases, proceedings are mainly based on documents and can be conducted without the use of this measure or at least quickly,” emphasized the SME Ombudsman. “We propose that – of course with the court’s approval at every stage – pre-trial detention could be applied for a maximum of nine months, because keeping an entrepreneur in detention for a long time results in everyone losing. A company whose boss is arrested immediately loses its reputation, credits, and contracts. After all, if he were convicted, his assets would be in ruins and he would not be able to pay his debts anyway. Therefore, pre-trial detention should be limited, applied only in exceptional cases and under court control.”

Polish entrepreneurs have been consistently demanding for years a reduction in the constant changes in regulations and the excess of bureaucracy, as well as simplification of the tax system, where chaos has particularly escalated since the implementation of the Polish New Deal. The thicket of regulations, often unnecessary or duplicate, their ambiguity, and arbitrary interpretation by state offices, as well as the amount of time entrepreneurs spend on administrative and office activities and reporting are growing rapidly, exposing Polish companies to unnecessary costs and inhibiting their growth. From the latest Grant Thornton report (“Law Barometer 2023”), it appears that last year, entrepreneurs would have had to dedicate an average of 2 hours and 10 minutes each working day to read all new legal acts. Another problem is ignoring public consultations and the fact that the vacatio legis, i.e. the time for companies to prepare for changes, is also being cut back year by year.

“Currently, this is a big problem, because often laws have been introduced that came into effect overnight,” says Adam Abramowicz. “First and foremost, there should not be constant changes in law, and newly enacted and implemented laws should always have a vacatio legis. This is also in our postulates in the “New Economic Policy”. Then the entrepreneur will always be able to calmly adjust to them, without destroying their contracts, orders or long-term action plan. The current authorities promise that it will be so, I take them at their word.”

The “New Economic Policy” document also includes demands regarding, among others, the voluntary social insurance (ZUS) for entrepreneurs, returning to the lump-sum health contribution, or smart implementation of EU law, according to the principle of “EU + zero”. This is about avoiding adding additional requirements to EU regulations, authored by Polish officials, which will additionally burden Polish entrepreneurs.

The SME sector accounts for around 99% of Polish companies. Statistics show that since 2019 there has been a significant increase in the number of interventions by the SME Ombudsman in contentious cases of this group of firms. While in 2019, the SME Ombudsman was involved in 142 such proceedings, by 2023 the number had risen to 986. In the case of contentious cases of small and medium-sized firms with tax authorities, the number of such interventions increased from 214 in 2019 to 343 last year.

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