Cash transactions and revenue costs

Subject to Article 15d(1) Corporate Income Tax Act[1] (further u.p.d.o.p.) introduced from 1 January 2017, taxpayers are not included in the cost revenue costs in the part where the payment relating to the transaction currently defined in the content Article 19 Act on 6 March 2018 Business law[2] ((c) it was made without intermediation of the payment account.

The same solution defines Article 22p(1) Personal Income Tax Act[3] (Further u.p.d.o.f.).

At the same time, the provisions of the two laws provide for specific arrangements, which are appropriate to the situation where a payment account was paid in respect of a transaction covered by the obligation to pay through a payment account in breach of that obligation after the cost had been put into the tax burden of obtaining revenue.

Introduction – the conditions for calculating costs to tax costs The determination of the tax costs for obtaining revenues on the grounds of u.p.d.o.p. and u.p.d.o.f. is undoubtedly a one of the key parameters to determine the value of the income tax due for the tax year and therefore the tax shown in the statement CIT-8, the corporation tax paid by taxpayers, but also the testimony PIT-36 either PIT-36L, tax on individuals, i.e. persons engaged in economic activity, paid by taxpayers.

It is therefore necessary to analyse the issue of tax burdening the costs of obtaining revenue from the costs incurred in the tax year:

• 1) compliance with the general conditions allowing the cost to be credited with tax costs in the context of u.p.d.o.p. or u.p.d.o.f. and
• 2) the absence of specific, cost-specific, negative indications which exclude the tax-related cost of obtaining revenue.

Suitable for sound Article 15(1) u.p.d.o.p. as well as Article 22(1) u.p.d.o.f., provision was made for a basic, applicable in the area of income tax, rule on the charge of the costs incurred in the tax burden of obtaining revenue. According to these regulations, the principle is that the cost of obtaining revenues is the costs incurred in order to obtain revenues (from the source of revenue in the area of u.p.d.o.p.), to preserve or secure the source of revenue, except for the costs listed in both tax laws[4], as non-tax revenue costs. Consequently, the above general rules, the costs incurred by the taxable person constitute the tax costs of obtaining revenue in the area of the two income tax laws established, where there is a link between their payment and the activity of the taxable person to establish that these costs:

• 1) have been incurred to generate revenue, or
• 2) have been incurred to preserve the source of revenue, or
• 3) have been incurred to secure the source of revenue.

However, in any case, the inclusion of expenditure (cost) in the tax cost of obtaining revenue requires that the specific, recognised and incurred cost, despite the fulfilment of one of the above conditions, it was not mentioned in the regulation Article 16(1) U.P.D.P. Article 23 u.p.d.o.f.

as a cost not considered to be tax revenue costs. Furthermore, it is also necessary, in line with the rules in force in this respect, to document the cost incurred by the taxable person, that the cost of obtaining revenue be considered to be a tax cost.

Regulations of the Business Law on Non-cash Payments

According to the regulation expressed in content Article 19 Act on 6 March 2018 Business law[5] (hereinafter, the payment of the economic activity shall be made or accepted through the payment account of the trader whenever:

1. the party to the transaction resulting from the payment is another trader; and
2. the one-off value of the transaction, irrespective of the number of payments resulting therefrom, exceeds the equivalent 15,000 PLN, transactions in foreign currencies shall be converted into gold at the average foreign exchange rate announced by the NBP on the last working day preceding the day of the transaction.

It should be noted that these regulations duplicate the existing regulations of the Act of 2 July 2004 on freedom of establishment[6] (further u.s.d.g.), which has been repealed in connection with the entry into force 30 April 2018 p.p. The current form of the solution established by content Article 19 p.p.

(previously Article 22 u.s.d.g.), in connection with the introduced law on 13 April 2016 amending the Personal Income Tax Act, the Corporate Income Tax Act and the Freedom of Business Act[7], it differs significantly from the previous cash payment regulations.

It should be recalled that in the legal state still in force to the end 2016, the limit of cash transactions between traders provided for in Article 22(1) u.s.d.g., was equal 15,000 EUR.

In particular, it should be stressed that the stated sound Article 19 p.p. (previously Article 22(1) (u.s.d.g.) the cash payment limit between traders refers to the one-off value of the transaction, regardless of the number of payments resulting therefrom. Therefore, a possible partial payment procedure for compliance with the rules for making/accepting payments provided for in the standard should be considered pointless.

Indicated in Article 19 The limit on the admissibility of cash payments refers to the value of the transaction and not to the value of the payment made in that transaction, for example if the one-off value of the transaction is determined between traders 20,000 PLN, This is to ensure that the limit resulting from Article 19 p.p., it is necessary that the entire liability of the seller (no matter the number of payments made) is realised through the payment account of the trader.

Exemption from tax revenue costs

Analyzing the proposed amendment of the provisions previously introduced to the regulations of u.s.d.g. (currently resulting from Article 19 p.p.), it should be noted that unlike the obligation to make payments between entrepreneurs through a bank account that existed until the end 2016, in the area of regulation in force since 1 January 2017, the obligation to make payments through a payment account has been subject to additional sanctioning measures introduced in the legal order.

In the light of regulation Article 15d(2) u.p.d.o.p. (Article 22p(2) (u.p.d.o.f.) in the case of crediting the cost revenue in the part in which the transaction payment specified in Article 19 p.p. was carried out without intermediation of the payment account, the taxpayer:

• 1) reduce the cost of obtaining revenue or
• 2) in the absence of the possibility to reduce the cost of obtaining revenue, increases revenue in the month in which the payment was made without intermediation of the payment account.

The above solution therefore requires an effective correction of not so much the revenue costs as the income tax base in the area of u.p.d.o.p. and u.p.d.o.f.

This will be the case where the costs initially recognised as tax costs (in accordance with the provisions of both laws in force) were included in these costs and subsequently (e.g. due to the agreed terms of the deferred payment transaction), the payment itself was made in breach of the obligation resulting from the Article 19 p.p.

Example

Entrepreneurs have traded between themselves for the supply of goods specified in the contract. The transaction value was 20,000 PLN. It was implemented

20 August 2018, and on the invoice issued, the payment deadline is set at

10 September 2018 Purchaser, i.e. an entrepreneur who is a natural person (for convenience – not entitled to deduct VAT), based on the wording Article 22(6b) u.p.d.o.f. passed the described cost (20,000 PLN) the tax burden of obtaining revenue at the date of issue of the invoice documenting the transaction. On 10 September 2018 the buyer made a payment to the supplier in the form of a bank transfer of the amount 15,000 PLN, However, one day later, the remaining part of the debt was paid in cash to the supplier.

When examining the facts presented, it must be concluded that the payment made between traders for payment of the agreed transaction was made in breach of the disposition Article 19 This is why special sanctions will be applied, as provided for in Article 22p(2) u.p.d.o.f.

As the value of the transaction exceeded the amount 15,000 PLN, and part of the payment was made without intermediation of the payment account, it is necessary to reduce the cost of obtaining revenue in the month in which the payment was made without intermediation of the payment account. Therefore, in September 2018 the buyer must reduce the cost of obtaining revenue by an amount 5,000 PLN, possibly, in the absence of such a possibility, it may make an appropriate increase in revenue.

It must be borne in mind that the obligation to make a reduction in the costs/increase in revenue relates to the part of the transaction that is included in the cost of obtaining revenue and in which payment was made without intermediation of the payment account.

It should be noted that these rules apply also to the acquisition or manufacture of fixed assets or the acquisition of intangible assets (Article 15d(3)(1) u.p.d.o.p., Article 22p(3)(1) u.p.d.o.f.), as well as in special situations relevant to the separate solutions provided for in both income tax laws.

Suitable in light:

1. Article 15d(3)(2) u.p.d.o.p. – the above-mentioned rules relating to the obligation to make payments via a payment account and the sanctions laid down concerning the need to reduce the cost of obtaining revenue (possibly an increase in revenue) apply when payments are made after a change in the form of taxation to the flat-rate form of taxation provided for in the Tonnage Tax Act[8] (hereinafter u.p.), except that the reduction in the cost of obtaining revenue or the increase in revenue occurs for the tax year preceding the tax year in which the form of taxation has changed,
2. Article 22p(3)(2) u.p.d.o.f. – the rules set out above apply in the case of payments made after the liquidation of non-agricultural business or after a change in the form of taxation to the flat-rate form of taxation laid down in the Flat-rate Income Tax Act on certain income generated by natural persons[9] or in u.p.t., except that in such cases the reduction in the cost of obtaining revenue or the increase in revenue occurs for the tax year in which the activity was wound down, or for the tax year preceding the tax year in which the form of taxation changed.

It should be pointed out that balance sheet law does not contain restrictions on the possibility of cash payments.

Compensation of mutual claims (offsetting)

At the level of the provisions under discussion, the u.p.d.o.p. and u.p.d.o.f. in relation to the solution resulting from Article 19 p.p., there is fundamental doubt as to the admissibility of extinguishing claims arising from transactions between traders for which there is an obligation to pay through a payment account by offsetting.

In the realities of economic life, economic operators are often both creditors and debtors. Therefore, in the event of the existence of mutually required claims of a monetary nature, it becomes a natural solution to deduct them from each other up to the amount of claims of lower value.

This is directly due to regulation Article 498(1) Act on 23 April 1964 Civil Code[10] ((c) which states that when two persons are both debtors and creditors to each other, each of which can deduct its claim from the other party's claim, if the subject of both claims is money or goods of the same quality marked only as regards the species and both claims are due and may be brought before a court or another state authority.

In turn Article 498(2) k.c. provides that, as a result of the deduction, both claims shall be released to each other up to the amount of the lower claim.

However, in the area of civil law regulation, the mutual expiry of existing claims up to the amount of lower claims does not give rise to much doubt, as regards claims arising from transactions between traders which, under a given transaction, according to Article 19 p.p., they are obliged to settle through a payment account, to settle such transactions by offsetting raises significant doubts.

Deductions, although of a non-cash nature, cannot be considered to be a payment made through an entrepreneur's payment account. Therefore, the question arises of the need for a sanctioning solution, provided for by regulations, in such a situation. Article 15d u.p.d.o.p.

(Article 22p This issue was the subject of an interpretation of individual tax law from 29 November 2016, which referred to the same regulations Article 22(1) u.s.d.g.

Individual interpretation of the Director of the Tax Chamber in Katowice 29 November 2016[11]

Provisions Article 22 u.s.d.g. refers to cash/non-cash payments rather than to the regulation of liabilities (which has a broader scope). In the case of payment, it may be made in cash or in cash. Therefore, where the obligation is regulated or terminated for reasons other than payment, the provisions in question shall not apply. Thus, the position of the Company, in its opinion, should be considered valid.

Summary

The consequence of this qualification is therefore the conclusion that the expiry of the obligation arising from an economic transaction between traders by offsetting each other and the claims required does not constitute a breach of the established wording Article 19 p.p. the obligation to settle through a payment account.

As a result, there are no grounds for applying the regulation Article 15d u.p.d.o.p. (Article 22p (u.p.d.o.f.) in relation to the tax costs arising from transactions in respect of which the tax liability expired by offsetting.

However, this qualification will only apply to the part of the obligation resulting from an economic transaction which expired by offsetting.

Therefore, if, for example, the deduction has resulted in the extinguishing of only part of the obligation resulting from the transaction in respect of which, according to the wording, Article 19 p.p., there is an obligation to make payments through a payment account and the remaining part of the accounts will be made in cash, it should be considered that, in relation to that cash-regulated part of the obligation under the tax laws, the sanctioning rules indicated by the wording of the Article 15d u.p.d.o.p. (Article 22p u.p.d.o.f.).

Termination of the obligation by offsetting mutual and due claims, including where the value of the deducted mutual claims exceeds the limit resulting from the content Article 19 p.p., does not give rise to the application of regulations Article 15d u.p.d.o.p. (Article 22p (u.p.d.o.f.) as regards the exemption from the cost of obtaining revenue.