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Expenses settled by netting may be included under tax deductible costs regardless of their amount

2017-02-23

As of 1 January 2017, the CIT Act has been supplemented with Article 15d, which restricts the possibility to include costs settled otherwise than by a payment transfer under tax deductible costs. The regulation could raise justified doubts among taxpayers who settle regularly their liabilities in high amounts by way of a set-off of mutual claims, including under netting system.

Pursuant to Article 15d of the CIT Act, taxpayers shall not include an expense under tax deductible costs in such part in which the payment regarding a transaction set forth in Article 22 of the Act on Freedom of Economic Activity, and namely:

  • which involves another entrepreneur, and

  • whose one-off value, regardless of the number of payments resulting from the transaction, is in excess of the equivalent of PLN 15,000 (in the case of transactions made in foreign currencies – translated at the average exchange rate of the National Bank of Poland prevailing on the last business day preceding the date of the transaction)

has been made without using a payment account.

So as of 1 January 2017 a taxpayer will not include under tax deductible costs a part of an expense settled without using a payment account equal to an excess over PLN 15,000, if the other party to the transaction is also an entrepreneur.

In the case of netting very popular among capital groups, mutual claims of the system participants are set off against each other – one of the entities, which has at the same time the intermediating and controlling function, sets off liabilities against receivables, determines resultant balances and administers the system.  Such solution not only simplifies and speeds up intercompany settlements but also reduces costs – for example of bank charges. Nevertheless, because actually not entire liabilities are paid by transfer but are set off against receivables of other entities, a question arose whether such solution does not trigger the restrictions excluding the expenses so settled from tax deductible costs.

Individual binding rulings which have been issued recently confirm the interpretation that set-offs will not fall within the scope of Article 15d of the CIT Act. As indicated by the provisions of the Civil Code regulating set-offs (Article 498.1 and 498.2), a set-off involves the mutual cancellation of claims up to the amount of the lesser claim, in consequence of which claims are settled without the need to make a payment, without using a payment account. While Article 15d of the CIT Act refers specifically to only one form of settlement of liabilities among entrepreneurs – to making payment and not to settlement by set-off.

So we should conclude that taxpayers settling their liabilities by way of set-off of mutual claims may include under tax deductible costs the expenses in full amount, provided of course that other conditions stipulated in the regulations are satisfied.

Such position is confirmed by individual binding rulings issued by the Director of Fiscal Chamber in Katowice on:

  • 14 February 2017, ref. no. IBPB-1-1.4510.21.2017.1.PB

  • 10 February 2017, ref. no. 2461-IBPB-1-1.4510.17.2017.1.BS

  • 7 October 2016, ref. no. IBPB-1-3.4510.824.2016.1.SK