On 28 April 2020 a government bill including the proposed “Anti-Crisis Shield 3.0” was filed with the parliament. One of the proposals is to amend the Film Act to require providers of on-demand audiovisual media services to make quarterly payments to the Polish Film Institute equal to 1.5% of their revenue from fees for delivering content or for transmission of commercial messages, whichever figure is higher in a given payment period. The duty to pay the new “fees” would enter into force on 1 July 2020.
The regulations introducing the new fees would apply to Polish entities as well as entities providing on-demand audiovisual media services based in another EU member state but generating revenue in Poland.
Aim of proposed regulations
The justification for the bill states that the aim of the proposal is to aid the film market in Poland, which has suffered greatly due to the COVID-19 pandemic. Introduction of a duty to pay a public charge equal to 1.5% of revenue of streaming services is founded on the lack of opportunity to screen films in cinemas, accompanied by a boom in the use of on-demand media services. It is also pointed out that the original version of the Anti-Crisis Act (Act of 31 March 2020 Amending the Act on Special Solutions for Preventing, Counteracting and Combating COVID-19, Other Infectious Diseases and Crises Caused by Them of 2 March 2020) amended the definition of a “film” in the Film Act to allow a film to be premiered not only in cinemas, but also through other types of services, including on-demand audiovisual media services (the amended Art. 4(1) of the Film Act of 30 June 2005 provides that a work that due to non-culpable circumstances cannot be shown in cinemas may also be regarded as a “film”).
According to the drafters of the bill, imposition of a new fee on providers of such services is justified because they have benefited from the change, as they can now offer their customers appealing, previously unreleased content produced with the support of the Polish Film Institute.
Who pays, and how much will the Polish Film Institute receive?
According to the assessment of the impact of the proposal, it would affect about 150 entities. It is estimated that after introduction of the new fees, the budget of the Polish Film Institute would receive an extra c. PLN 15 million through the end of 2020 and at least PLN 20 million annually in subsequent years. Major streaming services generated revenue in Poland of hundreds of millions of zlotys in 2019 (according to figures from the European Audiovisual Observatory). Unsurprisingly, the list was headed by Netflix, with revenue of c. PLN 430 million, which would translate into a new fee of c. PLN 6.5 million to the Polish Film Institute. IPLA (Polsat), with revenue of c. PLN 269 million, would owe the institute about PLN 4 million, followed by suppliers like Player.pl (TVN) (c. PLN 102 million), Amazon Prime (c. PLN 44 million) and CDA.pl (c. PLN 39 million), together yielding another nearly PLN 3 million for the institute under the new fee.
The bill excludes from the new charge micro-enterprises and entities whose users do not exceed 1% of the number of broadband internet subscribers in Poland.
Tax deductible cost
The current Art. 19 of the Film Act provides for a number of similar “1.5%” fees payable to the Polish Film Institute (including by cinema operators, TV broadcasters, and cable TV operators). Under Art. 19(1) of the act, for purposes of tax law these fees may be recognised as tax-deductible costs as of the date they are incurred.
Interestingly, the drafters of the bill failed to include a relevant amendment to extend this provision on tax deductible costs to cover the new fees to be paid by streaming services. Possibly this was an oversight which can be corrected later in the legislative process, although this provision benefits only entities paying income tax in Poland.
Nature of new “fee”
The nature of the proposed new fee also raises many doubts. On one hand, the administrative courts have previously held that the fees instituted by Art. 19 of the Film Act may not be treated as a tax or as fees or non-tax dues payable to the state budget (judgment of the Province Administrative Court in Warsaw of 22 November 2010, case no. VI SA/Wa 1861/10). On the other hand, it is hard to resist the impression that the proposed new fee is in reality a veiled attempt at partial introduction of a digital tax—a levy on digital services provided by the largest tech companies.
Back in 2006, in a petition seeking review of the constitutionality of Art. 19(9) of the Film Act (vesting the director of the Polish Film Institute with the entitlements of a tax authority in connection with the duty of entities to contribute 1.5% of their revenue to the institute), the Ombudsman argued that calling the payment a “contribution” conceals its true character, as in essence it is a new tax within the meaning of Art. 217 of the Constitution, i.e. a public-law, compulsory and non-refundable payment to the state, and this “contribution” to the budget of the Polish Film Institute is simply a tax earmarked for a special purpose (Constitutional Tribunal judgment of 9 October 2006, case no. K 12/06).
Sandra Derdoń, tax adviser, Michał Nowacki, attorney-at-law, tax adviser, Tax practice, Wardyński & Partners