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Poland: Tax treatment of “bad debts” and delayed or late payments in commercial transactions

Poland: Tax treatment of “bad debts”

New law in Poland (effective 1 January 2020) concerns commercial transactions, and specifically includes provisions affecting the tax treatment of “bad debts” by both creditor and debtor taxpayers.

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Background

According to an explanatory memorandum to the legislation, a main goal of the new law is to improve the legal environment in which parties to commercial transactions operate and to limit payment backlogs (in other words, to address what have been viewed as excessive payment delays in commercial transactions). The measures aim to enhance payment discipline and to afford greater legal protection for micro, small and medium-sized enterprises (SMEs).

The legislation includes measures that generally set payment deadlines at 60 days. This further allows a right to terminate or dissolve an agreement if the payment term set in the agreement “unreasonably” exceeds 120 days. Moreover, the changes allow an increase to the rate of statutory interest for a delay in commercial transactions (generally by two percentage points) as well as rules for a lump-sum compensation recovery.


New tax information reporting obligations

There are new tax information reporting requirement provisions imposed on tax capital groups and corporate income taxpayers that exceed a threshold of €50 million in revenue in the previous financial year. The information reports are to be submitted electronically by 31 January of the end of the following year, and are to report data on the value of payments received and made in the previous year within a period, including the value of payments not made and not received in the previous calendar year. The first report will be due 31 January 2021 and will cover payment practices for 2020.

Moreover, penalties can be imposed when, for a certain three-month period, the total value of cash payments made after the deadline equals PLN 2 million or more (PLN 5 million for years 2020-2021); these amounts will be perceived as representing an excessive delay in making the payments.


Treatment of “bad debts” for tax purposes

The amendments also introduce rules concerning "bad debts.” This new measure allows a taxpayer entity to reduce the amount of its tax base by the value of claims included in receivables and that have not been settled or disposed of, and the reduction for such bad debts will be reported in the tax return submitted for the tax year measured by a period of 90 days from the date of expiration of the payment deadline as specified in the contract or the invoice (bill). The ability to reduce the tax base (or increase the loss) further may be asserted if the debt has not been settled or disposed of by the date of submitting the tax return.

At the same time, the new measures impose on the debtor a requirement to increase its tax base by the amount of any unpaid cash liability (included in tax deductible costs), with the increase to be reported in the tax return for the tax year in which 90 days have elapsed since the date of payment. The tax base must be increased, or the loss reduced if the liability has not been settled by the date for filing the tax return. However, if the liability is settled, the debtor can make a return adjustment in the settlement for the period in which the liability will be settled.

There are also other additional conditions included for adjustment of the tax base or the value of the loss, and provisions will not apply to transactions between related parties.


Read a February 2020 report [PDF 248 KB] prepared by the KPMG member firm in Poland

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