Dear Clients,

In anticipation of the draft government shield package for entrepreneurs, we present below the tools resulting from applicable regulations that you can use already today to eliminate the negative economic effects of the spread of COVID-19 disease in Poland and in the world.

Granting a relief in tax payments

The Tax Ordinance provides for the possibility of granting reliefs in the payment of tax liabilities, consisting in deferring the deadline of a tax payment or tax advance payment, spreading the payment of tax into instalments, deferring or spreading in instalments the tax arrears together with interest or cancellation of all or part of the tax arrears and interest. In the case of entrepreneurs, the granting of relief in payment of tax liabilities or tax arrears should be analysed taking into account the provisions on state aid. One of the reasons for granting the relief constituting public aid is providing support to repair damage caused by extraordinary events, which undoubtedly include the spread of the epidemic in Poland and in the world. Proceedings in the field of public aid are usually the most complicated element of granting the relief, however, both the Government and the European Commission have announced that in the near future the provisions on public aid will not stop examining applications for relief in the payment of tax liabilities.

In order to obtain the relief, you should contact the relevant tax authority, justify the applicant's important interest in obtaining the relief and submit as much evidence as possible to demonstrate the impact of the current epidemiological situation on your business.

Settlement of tax losses from previous years

Entrepreneurs have the right to reduce their income by incurred tax loss. The loss can be deducted from income derived from the same source in the following five tax years. You can make a one-off settlement of a loss of up to PLN 5 million. However, this only applies to losses incurred after December 31, 2018.

According to interpretations of tax authorities, a taxpayer can offset a loss from tax advances without waiting until the end of the tax year. It is up to the taxpayer whether it deducts the loss when calculating tax advances for tax settlement periods or only in the final annual settlement. Thus, the loss incurred in 2020 can be deducted on a one-off basis up to the amount of PLN 5 million from the income achieved in 2021. The surplus of over PLN 5 million is deducted in subsequent tax years - up to 50 percent. These rules will apply provided that the Government do not offer entrepreneurs a more favourable settlement in this respect.

Including contractual penalties and damages as tax deductible costs

The current economic situation can result in the obligation to pay contractual penalties or other types of damages due to non-performance or improper performance of obligations. Generally, contractual penalties and damages are tax deductible costs, but tax laws contain a number of exclusions in this respect. They relate to those contractual penalties and damages that are paid for defects in the goods delivered, works and services performed and for delay in the delivery of goods free of defects or delay in the removal of defects in goods or works and services performed. The above catalogue is closed, which means that contractual penalties charged in the event of a delay in the delivery of the goods or the performance of the service should be considered as tax deductible if the taxpayer shows a link between their incurrence and the revenues generated.

The same applies to contractual penalties charged in connection with early termination of the contract. Incurring expenses in this respect can also constitute tax deductible costs on general terms.

Each time where there is an obligation to pay a contractual penalty in connection with the current socio-economic situation, it is necessary to analyse the basis for its calculation and the possibility of including the penalty as tax deductible costs.

It is not excluded that the Minister of Finance, by way of general interpretation, will refer to the issue of including contractual penalties paid in connection with the coronavirus epidemic as tax deductible costs.

Bad debt relief

Regulations on both, the goods and services tax and income tax, include provisions on the so-called relief for bad debts. If the taxpayer does not receive payment from the contractor within 90 days after the payment deadline, he has the opportunity to adjust the tax base in VAT and reduce the tax base in income tax. On the other hand, the debtor will be obliged to correct the deducted VAT and exclude expenses from tax deductible costs, accordingly. To take advantage of the relief, the debtor cannot be in the process of restructuring, bankruptcy or liquidation.

Receivables from a bankrupt contractor can, in turn, be included in tax deductible expenses as an impairment loss if they were previously recorded as receivable income.

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We will keep you up to date on the progress of the legislative work on specific Government solutions aimed at eliminating the effects of the epidemic on the economy.