An advance payment in full amount is already income. When does a prepayment become a payment?

March 9, 2026

The latest ruling of the Supreme Administrative Court (NSA) dated November 18, 2025 (case no. II FSK 362/23) clearly states that a payment covering the entire price – if no refund is provided for – cannot be treated as an advance. Even if the transfer of ownership occurs later.

Definitive payment determines income

The NSA emphasized that income arises from the actual settlement of the amount and the certainty of the transaction, not from the formal moment of ownership transfer. According to the court, if the payment covers 100% of the price and there is no mechanism for its return, it is final and constitutes payment, not an advance.

This was the case for a taxpayer who, in 2016, entered into a conditional agreement to sell an organized part of an enterprise (ZCP). He received the full price from the buyer, and the parties did not provide for any possibility of refund. Although ownership was to be transferred only after the condition was met – which happened in 2018 – the amount was fully and definitively settled in 2016.

The taxpayer’s arguments did not convince the courts

The taxpayer argued that since ownership of the ZCP was transferred two years later, the amount paid was an advance. Tax authorities maintained from the outset that it was a definitive performance of the obligation, meaning income arose upon receipt – under Article 14(1c)(2) of the PIT Act.

The Provincial Administrative Court in Poznań agreed with the tax office, stressing that the condition for ownership transfer does not affect the nature of the payment if the agreement does not allow for its reversal. Although the court annulled the authority’s decision for other reasons (related to determining tax costs), it confirmed that income arose in 2016. The NSA fully upheld this position.

When is an advance really an advance? NSA indicates key criteria

In its reasoning, the NSA explained that proper classification of a payment requires assessing its reversibility and the certainty of contract performance.

The court noted that:

• An advance is generally reversible, meaning it must allow for refund.
• There should be uncertainty about contract performance.
• Its amount should be partial relative to the entire transaction.

Meanwhile, in the case reviewed by the NSA, the payment:

• Covered 100% of the price,
• Was unconditional,
• Did not provide for any refund,
• Was linked to immediate free use of the enterprise by the buyer.

According to the NSA, under such circumstances, the payment cannot be considered an advance because, economically, the transaction was executed, and the seller definitively disposed of the subject of sale.

Tax consequences: income arises upon receipt of payment

The ruling confirms a key tax principle under the PIT Act: income arises when payment is received if it is final. Consequently, the taxpayer must recognize income regardless of when the conditions for ownership transfer or performance of obligations are met.

In practice, this means that a 100% prepayment triggers a tax obligation on the date it is received – unless the agreement provides for its refund or other elements indicate transaction uncertainty.

Tags advance payment, obowiązek podatkowy, prepayment, przedpłata, tax liability, zaliczka