2025-11-20
When can contractual penalties for delays be tax-deductible in Polish Corporate Income Tax (CIT)?
The Court held that, in certain circumstances, contractual penalties for delays may qualify as tax-deductible in Polish CIT. The case concerned a property developer unable to hand over apartments to clients in time, due to delays caused by the general contractor. The clients charged contractual penalties, which the developer has paid and qualified as tax-deductible costs. The Polish tax authority (KIS) argued that any penalty for non-performance or improper performance is excluded from tax costs under Art. 16(1)(22) of the Polish CIT Act. The Polish Supreme Administrative Court (NSA) disagreed.
The Court held that, in certain circumstances, contractual penalties for delays may qualify as tax-deductible in Polish CIT.
The case concerned a property developer unable to hand over apartments to clients in time, due to delays caused by the general contractor. The clients charged contractual penalties, which the developer has paid and qualified as tax-deductible costs. The Polish tax authority (KIS) argued that any penalty for non-performance or improper performance is excluded from tax costs under Art. 16(1)(22) of the Polish CIT Act. The Polish Supreme Administrative Court (NSA) disagreed.
The Court stressed that this provision is an exception to the rule and thus must be interpreted precisely. According to the judges, it only covers penalties related to defective performance and to delays for which the taxpayer is at fault (for example, failure to remedy defects within the agreed timeframe). Crucially, the Court distinguished between:
• a delay caused by circumstances within the taxpayer’s control (where the taxpayer can be blamed), and
• a delay resulting from circumstances beyond the taxpayer’s control (where the taxpayer is not at fault).
Only the first category falls within the statutory exclusion. A contractual penalty for a delay not attributable to the taxpayer’s fault may therefore be recognized as a tax-deductible cost – provided it still meets the general test required by Art. 15(1) of the Polish CIT Act, i.e. the cost is linked to earning, preserving or securing taxable income.
What does this mean in practice for businesses in Poland?
• carefully document the reasons for any delay,
• be clear whether the delay was within or outside your control,
• show how paying the penalty helps protect or secure your revenue (e.g. good relationship with a key client).
This is another taxpayer-friendly ruling under Polish law – and a good reminder to revisit your contracts and penalty clauses before the tax office does.
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