Ports at the Maritime Economy Forum. Squaring the Tax Circle
By “Port and city, or port versus city? Interdependence: a potential driver of development or a barrier to the development of both” was the title of a panel discussion at the Maritime Economy Forum, which was intended to ignite the discussion. It didn’t. Instead, the initial statements from the panel participants tempered it. The panel moderator, Piotr Pawłowski, Chairman of the Gdynia Port Stakeholders’ Council of the 14th term, brought up the topic of taxation.
Katarzyna Gruszecka-Spychała, Vice President of the Management Board for Finance and Asset Management at the Gdynia Port Authority S.A., recalled that “back in 2013, the European Commission stated that the law should be aligned so that the corporate income tax relief currently available to ports becomes compliant with European law.”
The issue is that some Polish media reported that the Polish seaports in Gdańsk, Gdynia, and Szczecin-Świnoujście are facing a serious financial crisis because the European Commission has deemed corporate income tax exemptions to be prohibited state aid. However, it’s not the ports themselves that are at risk, but rather the port authorities of fundamental importance to the national economy. It’s worth noting that only four of Poland’s 32 seaports have been granted the status of ports of fundamental importance to the national economy by the Act on Seaports and Harbors. These ports are managed by three joint-stock companies: the Port of Gdańsk, the Port of Gdynia, and the Port of Szczecin and Świnoujście.
Ports without taxes, but with obligations
Tax exemption, let’s emphasize the exemption of the Seaport Authorities, was sanctioned in 1996, when the Polish Parliament passed the Act on Seaports and Harbors, exempting port authorities’ revenues allocated to infrastructure development from income tax. Only after Poland’s accession to the EU in 2004 was it recognized that these regulations were inconsistent with EU principles of fair competition. They should be amended by 2007 at the latest.
“The Commission didn’t say this relief is illegal, or the ports have to pay,” explained President Gruszecka-Spychała, reminding the public that “the Commission said Poland should coordinate its law so that it ceases to be inconsistent with European law, and unfortunately, this hasn’t happened for many years.”
Tomasz Augustyniak, Deputy Mayor of Gdynia, emphasized that “the development of the Port is in the city’s interest” and that it should not be expected that the seaport authorities will “start paying taxes immediately, because they have a clearly defined, long-term investment policy, which, by the way, is a benefit to all of us.” It should be recalled that the Gdynia Port Authority (ZMP) not only invested within the port itself, but also in the infrastructure surrounding it.
The development of seaports is supported by the Marshal’s Office by creating a strategy that fosters entrepreneurship, explained Michał Graban, a maritime economy specialist at the Marshal’s Office, explaining the position of the Pomeranian Voivodeship government. An example of strategic support for the maritime economy is the Pomeranian smart specialization “Offshore and Port and Logistics Technologies” (ISP 1). In this area, the activities of administration and businesses focus on innovations related to maritime technologies, port logistics, and the offshore industry, which are key to the Pomeranian economy.
Port Terminals on the Investment Path
Wojciech Szymulewicz, President of the Management Board of BCT – Baltic Container Terminal in Gdynia, praised the investment activities of the Gdynia Port Authority. The Baltic Container Terminal (BCT – Baltic Container Terminal) in Gdynia signed a 30-year lease agreement with the port two years ago. ICTSI (the owner of BCT) began its initial operations in 2003. The new agreement is effective from June 1, 2023, and will last until 2053.
At the time of signing the agreement, the terminal’s management announced further development of the terminal. Under the new agreement, BCT plans to invest in handling equipment, such as new reach stackers, Meclift trucks, and terminal tractors, as well as the purchase of yard cranes. Private investment is possible thanks to the development investments of the Gdynia Port Authority, the BCT president emphasized.
Port investments require a long-term perspective, emphasizes Jan Jarmakowski, President of the Management Board and Managing Director of Gdynia Container Terminal S.A. The investor recognized the potential of the former Gdynia Shipyard and obtained perpetual usufruct until 2089. “We are not the only entity with perpetual usufruct on the port site,” says Jarmakowski, emphasizing: “Our situation is unique in that we had to build and construct the terminal with our own funds.”
“We compete, as I said, not only with Polish ports, but also with Hamburg, and to some extent with Rotterdam,” Jarmakowski emphasizes, explaining: “When competing and discussing additional port burdens, we must consider all aspects consistent with competitiveness. And above all, we must bear in mind that ports should continue to be attractive locations for private capital investment. The ideal indicator, let’s say, is whether private investment complements public investment.” Because “the private operator invests more than twice as much as public investments.”
Polish Seaports Under European Commission Scrutiny
Polish ports are not only under the European Commission’s microscope. Municipalities and the government are closely monitoring their profits. Taxation loomed large in the discussion. This stemmed from recent media reports that “ports face a refund of up to PLN 100 million each year – for the period since 2007.” The Vice President of the Gdynia Port Authority reassured the public that creating favorable conditions for seaport development is not limited to the Ministry of Infrastructure, “but the Ministry of Finance is also strongly involved in this process.”
“We know that next year’s budget won’t be particularly optimistic. In this context, raising any tax revenues for the budget seems crucial. Nevertheless, I can say that the Minister of Finance understands the concerns of Polish ports and realizes that what isn’t spent on corporate income tax will simply be allocated to investments,” Gruszecka-Spychała emphasized, noting that the goal is also to reduce the tax burden on small ports. “Small ports owned by municipalities are also at risk of increased tax burdens and, as a result, reduced funds for investments and operations,” explained Arkadiusz Zgliński, director of the Elbląg Sea Port. As a reminder, Elbląg is still awaiting the final decision on the unfreezing of EU funds for port development. This amounts to approximately PLN 200 million.
The issue of taxes and investments in Polish ports, both large and small, has long been clarified by the European Commission. As a reminder, in document K(2007) 3273 of July 10, 2007, addressed to Ms. Anna FOTYGA, Minister of Foreign Affairs, the European Commission states: “Within the meaning of Article 87(1) of the Treaty, financing [infrastructure related to port waters and providing access to ports or maritime harbours – Ministry of Economy] does not result in benefits for a specific undertaking.
The European Commission has long recognized that, in reality, when carrying out investment tasks, “port managing bodies do not conduct an economic activity, but act solely as a public authority ensuring full and adequate access to the sea, in the same way as, for example, authorities ensuring access to the road network. Therefore, the ports in question do not benefit from State aid within the meaning of Article 87(1).”
Ports and State Security
This European Commission communication from many years ago takes on new significance today, as seaports, both large and small, play a crucial role in ensuring national security, both economic and military. Gdynia is one such port. By investing in port security, we also invest in the security of entities operating within them, including shipyards. Investments in ports ensure the security of supplies for the national economy and the military. The intermodal terminal, presented at the opening of the Maritime Economy Forum by Piotr Gorzeński, President of the Port of Gdynia Authority, will also fulfill this role.
Deputy Minister of Infrastructure Arkadiusz Marchewka emphasized during his introductory speech to the 24th Maritime Economy Forum that the Polish government has set a firm course for the development of the maritime economy. “This course can be summed up in one word. The development of the maritime economy means increasing the broadly understood security of our country. Maritime economy, ports, and shipping.” “This is everything related to our economic security, energy security, military security, and food security,” Arkadiusz Marchewka enumerated.
And here we come to the crucial role played by seaports, and port authorities should strengthen them. Dr. Gavin Gulia, Ambassador of the Republic of Malta to the Republic of Poland, emphasized in his speech that spending on port security also ensures the security of entities operating within them and companies using them. Referring to this statement, the Vice President of the Gdynia Port Authority emphasized that “in a broader sense, we truly act for the benefit of the entire country,” so while we are “at the stage of amending the draft CIT Act, the Act on Seaports and Harbors, and drafting the draft regulation (…), we must create a system acceptable to the European Commission.”
Ports and Terminals with a Strategy
Seaports and terminals must therefore operate under conditions of changing legislation. This does not favor strategic actions and increased competitiveness. President Jarmakowski noted that “Despite the success of significant investments in Polish ports, and private operators also investing enormous amounts, our ports are still not competitive. If we look at the potential available in Poland, and for example in Germany or Rotterdam, there is obviously nothing to compare. And we are also faced with this at the level of regular operations.”
According to the President of GCT, “In Poland, Polish ports still lack high-class quays that could even fulfill an ecological function.” “If we impose a 2% property tax on port operations, along with other taxes that are to be raised, then, ladies and gentlemen, the difference in rates of 1.5% will determine whether a given group invests in a given project. So, it may or may not be an investment.”
According to President Jarmakowski, “We don’t yet have a well-developed public-private partnership model for concession projects in Poland. Because port operators operate on a concession basis. We don’t have guaranteed fees, just like with highways.”
Partnership Needed
The issue of delays in investment implementation was also raised. President Piotr Pawłowski referred to the Supreme Audit Office (NIK) report on ports of fundamental importance to the economy, which stated that “Investment plans were, however, incomplete and delayed.” The NIK report notes that “The incomplete implementation [of the plans] resulted, among other things, from delays in investment implementation due to, for example, slow procedures for obtaining the necessary documentation (including decisions/permits), difficulties in obtaining agreements with land owners or leaseholders, and problems with tender procedures, including the bankruptcy of the selected contractor. [This applies as of June 30, 2021].”
The Vice-President of the Gdynia Port Authority (ZMP) explained that there is a “discrepancy between the material and financial scope.” This occurs when the material scope exceeds the financial scope of the investment. The project is being implemented, but “we have the impression that the funds have not been spent.”
The fact that the debate on ports is taking place in Gdynia is symbolic. The construction of the Port of Gdynia has demonstrated that investing in this type of infrastructure is an impetus for building a new quality, not only at the Polish and regional levels. The Port of Gdynia is a permanent and recognizable landmark on the global logistics map. Investments in its development also represent investments in the development of the industrial zone operating here and in Poland’s security. The city of Gdynia was created as a result of the long-term vision of politicians of the Second Polish Republic. The port and the city form a single entity, developing through the symbiosis of social and business interests. This was evident during the deliberations and behind-the-scenes discussions at the Pomeranian Science and Technology Park.