Split payment has become a threat to many companies that see it as a barrier to liquidity. In response to these concerns, the law on recovery was amended.
Report Financial liquidity of companies in the Polish legal system, prepared by the Republican Foundation, 30% B2B sales in Poland are based on the so-called merchant credit, i.e. a postponement of the payment deadline, which in practice involves late payments, not even with timed repayment dates.
This practice is a major problem, especially for micro-enterprises (as shown by BigInfoMonitor’s research 50% micro-entrepreneurs struggle with payment congestion). He's gonna solve it. Act dated 19 July 2019 to amend certain laws to limit payment congestion. This law amends, among others, the Income Tax and Corporate Income Tax laws.
The Act introduces a reduction in payment deadlines in commercial transactions.
Act dated 19 July 2019 to amend certain laws to limit payment congestion. This law amends, among others, the Income Tax and Corporate Income Tax laws. The Act introduces a reduction in payment deadlines in commercial transactions.
Reduction of repayment deadlines
The main objective of the new regulation is to reduce to a maximum 30 days from the date of delivery of the invoice of the time limits for payment in commercial transactions in which the debtor is a public entity (excluding medicinal agents) and up to the maximum 60 the date of payment in transactions where the creditor is a micro, small or medium-sized enterprise and the debtor is a large company. The amendment also assumes changes in relation to income taxes and includes the possibility for the creditor to reduce the tax base by the amount of the claim if it has not been regulated or disposed of within the period 90 days from the date of expiry of the payment deadline.
According to the Ministry of Finance (MF), changes are necessary and one for the main reasons that affect the lack of development of small and medium-sized enterprises are financial liquidity problems. These problems are largely due to payment bottlenecks.
Undertakings charged with cumulative and overlapping payment congestion are forced to use alternative sources of funding.
The MF also points out that it is popular and practiced to use unjustified, too long deadlines for payment for the goods delivered or the service rendered, which significantly impedes the liquidity of the entrepreneur awaiting payment, mainly the one who bought the goods necessary to carry out the transaction by paying it in advance.
Tax base adjustments
Act dated 19 July 2019 amending certain laws to reduce congestion introduces a personal income tax law Article 26i, and in the Corporate Income Tax Act Article 18f, where the taxable amount is indicated:
- may be reduced by the value of the claim for payment of the cash benefit within the meaning of Article 4(1a) Act on the prevention of excessive delays, which has not been regulated or disposed of, with reductions being made in the tax return submitted for the tax year in which it passed 90 days from the date of expiry of the payment period specified on the invoice (account) or in the contract;
- is subject to an increase of the value of the liability to pay the cash benefit as defined by the cost of obtaining revenue Article 4(1a) Act on the prevention of excessive delays, which has not been regulated, with an increase being made in the tax return submitted for the tax year in which it passed 90 days from the date of expiry of the payment period specified on the invoice (account) or in the contract.
According to the new rules, creditors will be entitled to adjust the tax base and increase it by the amount of outstanding debt, while debtors will be required to adjust the tax base for the cost of obtaining income by the value of the liability to be paid.
The increase or reduction of the tax base of the company will be made if, by the date of the tax return, the undertaking is not regulated. It should be noted that the provisions do not apply to trade transactions between related parties within the meaning of the Income Tax Act.
Deduction of the tax base in subsequent years
Article 3.
point 3 Act dated 19 July 2019 to amend certain laws to limit payment congestion, provides that the application of the reduction also provides for the possibility of deducting, if the value of the reduction of the tax base is higher than that base, the reduction of the tax base by an unpaid value is made in subsequent tax years, but no longer than for a period 3 years from the end of the tax year for which the right to reduction was created.
The tax base is reduced in subsequent years if the claim has not been regulated or disposed of.
Income on which the advance is calculated
Article 3. point 19 provides that the income:
- may be reduced by the value of the claim for payment of the cash benefit within the meaning of Article 4(1a) Act on the prevention of excessive delays, which has not been regulated or disposed of, with a reduction being made from the settlement period in which it expired 90 days from the date of expiry of the payment period specified on the invoice (account) or in the contract, until the period during which the claim was settled or disposed of;
- is subject to an increase of the value of the liability to pay the cash benefit as defined by the cost of obtaining revenue Article 4(1a) Act on the prevention of excessive delays, which has not been regulated, with an increase in the income underlying the calculation of the advance being made from the settlement period in which it expired 90 the days from the date of expiry of the payment period specified on the invoice (account) or in the contract, until the period during which the commitment is settled.
Therefore, a reduction or increase shall be made if the advance of the claim or the commitment has not been settled by the date of payment.
The new regulation is a big bow towards small and medium-sized enterprises, which have often been hit by congestion, which has made them unable to develop and which has led to new commitments to maintain liquidity, which in turn has even resulted in their collapse. Changes in income taxes enter into force 1 January 2020.