Deferred PIT tax – what is it?

Deferred PIT tax – what is it?
Marek Cieślak

Marek Cieślak

CEO CGO Finance

A deferred PIT tax was mentioned by Prime Minister Donald Tusk in his exposé. According to current regulations, revenue is considered as amounts due, even if they have not been received. Let’s take a closer look what deferred PIT actually is.

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Currently, there is a specific mechanism protecting entrepreneurs in the event of non-payment. The entrepreneur can use the so-called bad debt relief if payment is not received within 90 days from the invoice payment deadline. In such a case, he can adjust the income amount.

Is it a good solution?

  1. The company can adjust the income only after 90 days from the invoice payment deadline. Until then, they declare certain income for taxation. Depending on the settlement method, they may be required to pay an advance tax on that amount.
  2. The entrepreneur cannot always benefit from bad debt relief. This is not possible in the following cases:
  • during restructuring, bankruptcy, or liquidation proceedings,
  • after 3 years of the end of the calendar year in which the invoice was issued or the contract was concluded,
  • if the transaction involves a taxpayer whose income is taxed abroad.

Deferred PIT tax – what benefits and concerns are associated with it?

The assumption is that in the case of deferred PIT tax, income would be recognized at the moment of receiving the amount due. Deferred PIT could thus be a response to issues related to using the mentioned bad debt relief. However, it is impossible to evaluate this institution without reviewing the draft bill. Its specific solutions will definitely require a thorough analysis.

In his exposé, Prime Minister Donald Tusk only mentioned deferred PIT. So, it can be assumed that taxpayers subject to CIT may not benefit from the new solution.

Deferred PIT will probably impose an obligation to track payments. It will be crucial to capture the moment of their receipt. This may not be problematic for smaller businesses. Yet, such a solution could pose challenges for larger companies.

Deferred PIT tax – will every entrepreneur benefit from it?

For some entrepreneurs deferred PIT tax may cause more challenges than benefits. Especially if changes also affect determining the recognition moment of revenue-related costs. If the income recognition is deferred until payment, legislators may seek to defer recognizing the costs of earning revenue. This would complicate the process of settling costs. Without such a solution, a proportionality issue between revenue and costs for tax purposes arises. Many provisions referring to cost recognition would require numerous changes in the law.

It is worth considering a deferred PIT tax as a voluntary rather than mandatory solution. Then the taxpayer could decide for himself which solution is more favorable for his business.

When to submit the annual tax returns for PIT and CIT in 2024? What are the limits for small VAT, PIT and CIT taxpayers? Find answers in this article

Deferred PIT tax – will it affect the recognition of costs with an unreliable contractor?

If cash-based PIT is associated with changes in this regard, the regulations should be more specific. The legislator should clarify whether it will apply only to unreliable payers who are subject to PIT. For now, it is not obvious if it will also concern CIT payers.

Under current regulations, unreliable contractors are generally obliged to adjust costs if the payment delay exceeds 90 days. This solution is linked to the mentioned bad debt relief in income tax. It ensures a symmetrical view of the revenues and costs of both parties of the transaction. Without proper provisions, the entity receiving the invoice can recognize costs even if payment is not made. This may lead to abuses in order to obtain tax benefits.

Deferred PIT tax – summary

Deferred PIT tax is a response to current issues regarding the protection of entrepreneurs. As a rule, the moment of income creation in deferred PIT would be the actual receipt of the amount due. Would this always be the case for every type of income? What exceptions or additional requirements may possibly occur? To answer these questions, we need to wait for the publication of a draft bill on this solution.

If you find this topic interesting and want to know more about it, do not hesitate to contact us. Our experts are ready to help you.

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Marek Cieślak

CEO CGO Finance