Poland Expands Special Economic Zones
Free zones are presently all the rage (including in South Africa). So much so that Poland has decided to go the whole hog and transform itself into one big, country-sized special economic zone.
The fact that the world seems to have lost count of the number of its free zones tells you something about the rate at which they have proliferated in the post-World War Two era, and particularly in the last couple of decades. According to the World Freezone Atlas published in 2010, there were 1,735 free zones, dotted all over the globe. However, an OECD study published two years previously suggested that there were as many as 5,000 free zones. Perhaps the true figure is somewhere in the middle – something like 3,500 perhaps, as the World Trade Organization suggests.
The actual answer, I think, depends very much on your definition of a free zone, because they come in all shapes and sizes. On the one hand, you have the all-singing, all-dancing Dubai-style free zone, within which companies are exempted from most taxes and many regulatory requirements and are, for all intents and purposes, treated as non-residents. At the other end, you have free ports, where goods can be stored, exported, and re-exported free from many of the usual customs formalities. And then you have many shades in between.
Free zones are now spread so far and wide across the world that it’s probably easier to name the locations where they tend not to exist, rather than the places in which they do. Notably, the European Union is something of an island in a sea of free zones. And that’s because rules preventing state aid make it difficult for member states to get away with providing targeted tax incentives.
This makes EU member state Poland’s case quite intriguing, therefore. Perhaps the Government has reasoned that there is no state aid case to answer if, in theory, every business meeting certain requirements is entitled to free zone treatment, as opposed to just a select few. The European Commission might have something to say about that though, so it’s entirely possible that we haven’t heard the last of this story.
The Polish development is also interesting from another point of view – the UK’s point of view, to be more precise. Because theoretically, the UK, once Brexit is done and dusted and the country is no longer bound by state aid rules, would be free to establish fiscally privileged special economic zones anywhere it sees fit. Indeed, such a possibility has already been mentioned in parliament in the context of the debate on legislation setting out the framework the future arrangements between the EU and the UK on tax and trade. And by creating a number of free ports, the UK could mitigate some of the bureaucratic problems importers and exporters expect from withdrawing from the Customs Union.
Of course, this depends on the sort of trading arrangements that are agreed in the upcoming trade negotiations. And it wouldn’t be surprising if the EU attempts to include a state aid element in any free trade agreement to prevent new “tax havens” springing up off the shores of north-west Europe. If it fails to include such clauses, it probably wouldn’t matter anyway. The existing EU state aid rules have become so flexible as to be used to challenge anything tax-related that the EU doesn’t particularly like, irrespective of whether the country in question is a member state. Just ask Switzerland. Or Ireland, for that matter.
Imagine the fallout, then, if the UK dared to go the “full Polish” and declare the whole country a free zone. The Commission would have a field day with that!
For more information on this, and other topical international tax matters, please visit: https://www.cchgroup.com/roles/corporations/international-solutions/research/global-tax-weekly-a-closer-look