The provisions referring to bad debt allowances

The provisions referring to bad debt allowances give the possibility to correct the tax basis, and thus in fact the recovery of output VAT paid on invoices left unpaid by the customers.

The issuer of the invoice can correct the tax base and the tax due on the supply of goods or services on the territory of Poland in the case of claims whose recoverability proves doubtful. The adjustment also applies to the tax base and tax amount attributable, to the portion of the amount of the claim where the recoverability proves doubtful. A claim is considered to be evidenced doubtful, which has not been paid within 150 days from the due date of the payment specified in the contract or invoice.

The act lays down certain conditions to qualify for relief. The most important are:

• Both the issuer of the invoice and the buyer are VAT registered taxpayers, on the day preceding the date of the correction of the declaration, they must be registered taxpayers;
• The buyer of an invoice – the debtor is not in bankruptcy proceedings or liquidation;
• Invoice has not been paid.

In the event following the submission of the tax declaration, in which the correction has been performed, the outstanding claim will be settled or purchased in whatever form, the issuer of the invoice stays obliged to show again the turnover in his declaration and to pay the tax due.

Along with the tax return, in which the adjustment is realised, the issuer of the invoice notifies the tax office of the fact of that adjustment.

Importantly, the possibility to capitalise on the aforementioned provisions on the side of the issuer of the invoice is his right. The issuer of the invoice might but must not apply the aforementioned provisions.

However, a debtor failing to pay his invoice within 150 days from the payment deadline is obliged to adjust the deducted input VAT arising from the related invoice, in the settlement statement of the period, in which lapsed the 150th day calculated starting from the payment deadline set forth either in the contract or in the invoice.

This requirement shall not apply if the debtor has paid the amount due by the last day of the settlement period, on which lapsed 150 days from the due date of the payment of the debt.

Importantly, absence of such an adjustment exposes the debtor to penalties amounting to 30% of the tax amount originating from the unpaid invoices.