Relief for bad debts – PIT, CIT and VAT changes
March 22, 2018
According to the proposal of the Ministry of Development and Finance, in 2018, in the income tax from legal persons (CIT Act) and income tax from natural persons (PIT Act), a new relief will be introduced – a relief for bad debts, the mechanism of which already operates in tax on goods and services (VAT Act).
Value added tax (VAT)
The Act on Value Added Tax allows the taxpayer to adjust the tax base and tax due on the supply of goods or services on the territory of the country in the case of receivables of which non-recoverability was substantiated. Non-recoverability of receivables is considered as substantiated if the receivable has not been settled or sold in any form within 120 days from the date of expiry of its payment specified in the contract or invoice. This procedure is called the relief for bad debts and it is applied when the following conditions are met:
- the delivery of goods or services is made to the taxpayer referred to in art. 15 para. 1, registered as an active VAT payer, not being in the course of bankruptcy proceedings or liquidation,
- on the day preceding the day of submitting the tax return, in which the adjustment is made
- the creditor and the debtor are taxpayers registered as active VAT taxpayers,
- the debtor is not in the course of bankruptcy or liquidation proceedings,
- from the date of issuing the invoice documenting the receivable, it has not been 2 years since the end of the year in which it was issued.
One of the planned amendments to the draft of the law is to shorten the deadline for making the adjustment by the creditor and the debtor, from 150 days to 120 days. Other conditions entitling to the application of relief do not change.
Creditor – the right to correct
The taxpayer may adjust the tax base and the tax due on the supply of goods and services or the provision of services within the territory of the country in the case of receivables of which non-recoverability was substantiated. The correction also applies to the tax base and the amount of tax per portion of the amount of debt of which non-recoverability was substantiated. Correction can take place in the settlement for the period in which the non-collectability of the receivable is considered as substantiated provided that by the time of submitting by the creditor the tax return for that period it has not been settled or sold. The creditor is obliged when submitted the tax return in which it makes the correction – to notify the head of the tax office competent for its location about this correction, including the amounts of the correction and the debtor’s data. If, after submitting the tax return in which the adjustment was made, the receivable was settled or sold, the creditor is obliged to increase the tax base and the amount of tax due in the settlement for the period in which the receivable was settled or sold. In the case of partial settlement of the amount due, the tax base and the amount of tax due are increased in relation to this part.
Debtor – the obligation to correct
In the event of failure to settle the receivable resulting from the invoice documenting the delivery of goods or services within the territory of the country within 120 days from the date of its payment specified in the contract or invoice, the debtor will be obliged to adjust the deductible tax amount resulting from this invoice in the settlement period, in which 120 days elapsed from the date of expiry of the payment deadline specified in the contract or invoice. The provision does not apply if the debtor settles the payment at the latest on the last day of the accounting period, in which 120 days elapsed from the date of expiry of the payment due date. It also does not apply if the debtor on the last day of the month in which 120 days elapsed from the date of expiry of the payment deadline, is in the course of bankruptcy or liquidation proceedings. In the case of partial settlement of the receivable, the adjustment applies to input tax falling on an unsettled portion of the receivable.
Act on income tax PIT and CIT
An important change to be made in corporate income tax as well as income tax from natural persons is to introduce and adapt solutions applied in the tax on goods and services regarding the relief for bad debts. Creditors will be able to reduce their income by unrealized receivables while debtors will be obliged to increase their income by unpaid liabilities. As in the case of tax on goods and services, the deadline to benefit from bad debt relief will be 120 days.
This relief can be applied if all of the following conditions are met:
- the debtor and creditor are not in the course of restructuring, bankruptcy or liquidation proceedings,
- from the date of invoice (bill) or conclusion of the contract, it has not been more than 2 years since the end of the calendar year in which the invoice (bill) was issued or contract was concluded,
- the creditor and the debtor is a Polish tax resident or taxpayer who does not have a tax residence in Poland but who obtains income here through a foreign establishment to which the receivable or liability relates.
Creditor – the right to correct
The draft amendment provides for the possibility of reducing the taxable amount by the creditor by the amount of the receivable provided that it is not settled or sold within 120 days from the date of its payment specified in the contract or invoice. This is a new entitlement for creditors that they will be able to exercise but they will not be obliged to do so. If, after adjustment, the receivable would be settled or disposed of, the creditor would have to increase the tax base and pay the tax in the settlement for the period in which the receivable was made (sold).
Debtor – the obligation to correct
The debtor is required to add the amounts of unsettled liabilities to the tax base. The debtor will be required to make increases for the settlement period in which 120 days elapsed from the date of expiration of the repayment deadline. If the obligation is settled, the debtor will be entitled to a correction in the settlement for the period in which the liability will be settled.
Adjustments will only apply to receivables and liabilities arising in connection with commercial transactions marked as revenue and tax deductible costs, irrespective of the time of their deduction. To avoid their double settlement in the tax account, the receivables written off in the above manner cannot be included in the tax deductible costs.
Tags CIT changes 2018, PIT changes 2018, Relief for bad debts, the creditor's right to correct
