Tax deductibility of contractual penalties for delay in Poland – favourable ruling by the Head of the National Revenue Administration (KAS)

On 13 March 2026, the Head of the National Revenue Administration (KAS) accepted the taxpayer’s complaint and amended an earlier adverse individual tax ruling concerning a contractual penalty. The case is directly relevant to the tax deductibility of contractual penalties for delay in Poland. KAS accepted the company’s position that the following could qualify as tax-deductible costs: a PLN 80,677.96 penalty for delay in fulfilling warranty obligations, statutory interest paid on that penalty, and court costs together with interest paid on those costs.

The dispute did not concern defects in the completed works or supplied equipment. The subject of the contract had been accepted without reservations, while the penalty arose from delays in carrying out periodic warranty inspections. The Head of KAS accepted the company’s position but did not provide legal reasoning for the assessment. The ruling therefore relates to the specific facts presented and does not establish that every penalty for delay automatically qualifies as a tax-deductible cost.

Can a contractual penalty for delay be tax-deductible in Poland? The ruling shows that the actual reason for imposing the penalty is crucial. In this case, the company initially took a conservative approach and recognised the penalty as NKUP, meaning a non-tax-deductible cost. It then applied for an individual tax ruling to confirm whether the penalty could instead be treated as tax-deductible.

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What did the Head of KAS decide on 13 March 2026?

The case concerned a Polish limited liability company carrying out specialist energy and technical infrastructure contracts. Its activities included the supply, installation, configuration and commissioning of Uninterruptible Power Supply (UPS) systems, followed by servicing and warranty support.

On 30 November 2018, the company entered into a contract for the supply, installation, configuration and commissioning of a UPS system, including start-up, testing and preparation of documentation. The main part of the contract was completed. The final stage was formally accepted, and the customer raised no objections regarding the quality of the completed works or the equipment supplied. The problem arose later, during the warranty period.

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Why was the company charged a contractual penalty?

The dispute concerned periodic technical inspections of the UPS system. The company considered that, during the 60-month warranty period, the inspections should be provided as separate, paid servicing activities. This assumption was included in the warranty and servicing terms prepared by the company.

The customer took a different view. It maintained that periodic inspections were already included in the agreed lump-sum remuneration and should therefore be provided without any additional charge throughout the warranty period. The dispute was brought before the court.

The Regional Court held that a document prepared by the contractor could not alter the provisions of the contract and the tender documentation. It therefore concluded that the inspections should have been carried out within the agreed lump-sum remuneration.

The first inspection should have been performed no later than 18 July 2020. The company did not carry it out because it consistently regarded the inspections as a separate service requiring additional remuneration. The customer therefore charged a contractual penalty for delay in fulfilling the warranty obligations.

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How much was the contractual penalty for delay?

The contract provided for a penalty equal to 0.02% of the gross contract value for each commenced day of delay in fulfilling the warranty obligations.

The penalties were calculated for two periods:

• from 19 July 2020 to 16 December 2021,
• from 17 December 2021 to 6 December 2022.

The total contractual penalty amounted to PLN 80,677.96. On 26 January 2023, the customer brought an action for payment. In a judgment dated 31 October 2024, the Regional Court ordered the company to pay the full amount of the penalty together with statutory interest for late payment. The company was also required to pay PLN 9,451 in court costs, again together with statutory interest. All amounts awarded by the court were subsequently paid.

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Can a contractual penalty for delay be a tax-deductible cost in Poland?

Based on the facts presented in the application, the Head of KAS accepted the company’s position that the PLN 80,677.96 penalty could be recognised as a tax-deductible cost.

The taxpayer argued that the penalty did not result from defects in the installed equipment or improper performance of the works. On the contrary, the main contractual performance had been accepted without reservations, and the court did not question the quality of the completed work. Instead, the penalty was charged because of a delay in fulfilling warranty obligations consisting of periodic inspections of the UPS system. This distinction was one of the central elements of the company’s argument.

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How did the company justify treating the penalty as tax-deductible?

The taxpayer based its position primarily on Article 15(1) and Article 16(1)(22) of the Polish Corporate Income Tax (CIT) Act. It argued that, under the general rule, rational business expenses may constitute tax-deductible costs if they are connected with business activity and incurred to generate income or preserve or secure its source, provided they are not expressly excluded by the Act.

For contractual penalties, Article 16(1)(22) of the Polish CIT Act is particularly important. According to the company’s argument, the provision excludes contractual penalties and damages relating to:

• defects in supplied goods, completed works and services,
• delay in delivering goods free from defects,
• delay in removing defects in goods, completed works or services.

The company therefore argued that a penalty for delay in fulfilling warranty obligations, where the underlying contractual performance itself was not defective, should not automatically fall within this exclusion. The taxpayer also pointed out that contractual risk, including exposure to contractual penalties, forms part of business activity involving complex and long-term contracts.

A broader discussion of the tax treatment of contractual penalties for delay under Article 16(1)(22) of the Polish CIT Act and the case law of the Supreme Administrative Court of Poland (NSA) is available in our article Contractual penalties and tax-deductible costs in Poland – a ruling by the Supreme Administrative Court of Poland (NSA).

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Did the Head of KAS confirm the company’s legal reasoning?

The Head of KAS accepted the company’s position as correct but did not provide separate legal reasoning for that assessment. This distinction is important when interpreting the ruling.

In the letter dated 13 March 2026, the Head of KAS:

• accepted the taxpayer’s complaint,
• amended the challenged individual ruling ex officio,
• accepted the company’s position concerning the penalty, interest and court costs,
• refrained from providing legal reasoning for the assessment.

It would therefore be incorrect to attribute specific conclusions concerning the interpretation of Article 16(1)(22) of the Polish CIT Act to the Head of KAS where the authority did not itself formulate them. What can be said is that KAS accepted the outcome presented by the company on the basis of the facts described in its application.

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Do later Polish tax rulings confirm this favourable direction?

Following the change made by the Head of KAS, further favourable rulings were issued concerning penalties for late performance of contractual obligations. On 30 July 2026, the Director of the National Revenue Information (KIS) confirmed that a penalty for delayed delivery of equipment could be recognised as a tax-deductible cost where the equipment complied with the contract and was free from defects, and the delay did not result from gross negligence by the taxpayer.

Similarly, in a ruling dated 6 August 2026, issued following a judgment of the Provincial Administrative Court in Lublin (WSA), the taxpayer’s position concerning the tax deductibility of penalties for late performance of a contract was accepted. These rulings do not establish an automatic rule for all contractual penalties, but they indicate that delays unrelated to defective performance continue to receive favourable treatment where the general requirements for a tax-deductible cost are satisfied.

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Why was the distinction between a defect and a delay important?

Throughout its application, the company consistently distinguished the quality of the contractual performance from the subsequent delay in fulfilling the warranty obligations. The UPS system had been properly supplied, installed and commissioned. The customer accepted the completed work without reservations.

Nor did the case concern a delay in remedying identified defects. The dispute concerned whether periodic inspections should be provided free of charge as part of the warranty or treated as a separate service subject to additional remuneration.

On this basis, the company argued that the penalty did not fall within the categories of expenses excluded under Article 16(1)(22) of the Polish CIT Act. The facts surrounding other penalties may be different. Before applying similar tax treatment, a company should therefore establish the actual contractual basis on which the charge was imposed.

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Why did the company initially treat the penalty as a non-tax-deductible cost (NKUP)?

This is one of the most practically relevant aspects of the case. For accounting purposes, the company adopted a conservative approach and classified the PLN 80,677.96 penalty as NKUP, meaning a non-tax-deductible cost.

At the same time:

• interest paid on the penalty was recognised as KUP, meaning a tax-deductible cost,
• the awarded court costs of PLN 9,451 were also recognised as KUP.

The company applied for an individual tax ruling because it was uncertain whether its conservative treatment of the penalty itself was correct. The Head of KAS ultimately accepted the position set out in the application, according to which the penalty itself could also qualify as a tax-deductible cost in the specific circumstances described.

For finance and accounting teams, the case provides an important practical point: KUP or NKUP classification should not depend solely on an expense being labelled a contractual penalty. The company should first identify the precise reason why the penalty was imposed and the nature of the non-performance or improper performance of the contractual obligation.

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Can interest on a contractual penalty be tax-deductible?

In the case reviewed, the Head of KAS also accepted the company’s position regarding statutory interest for late payment on the contractual penalty, to the extent that the interest had actually been paid. The taxpayer relied in this respect on Article 16(1)(11) of the Polish CIT Act.

The argument presented in the application stated that accrued but unpaid or remitted interest does not constitute a tax-deductible cost. The company therefore considered that interest could be recognised as KUP once it had actually been paid. In the case reviewed, all amounts arising from the final court judgment had been settled. The Head of KAS also accepted the taxpayer’s position in this respect.

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Can court costs qualify as tax-deductible costs in Poland?

In this particular case, the position that the awarded court costs and the interest paid on those costs could be treated as tax-deductible was also accepted.

The company incurred PLN 9,451 in court costs. It argued that the proceedings arose from a contract entered into as part of its core business and that defending itself against the customer’s claim was intended to protect the company’s financial interests. The taxpayer therefore treated the litigation costs as expenses connected with its business activity. The Head of KAS accepted the company’s position in this respect as well.

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What does the 13 March 2026 ruling mean for businesses in Poland?

The ruling primarily demonstrates that the tax treatment of a contractual penalty should be based on the actual reason for the charge, rather than simply on the name given to the expense. A central element of the company’s argument was the separation of properly completed main contractual performance from the subsequent delay in fulfilling warranty obligations.

Based on the circumstances described in the application, several points should be checked when analysing a similar penalty:

1. What precise breach triggered the contractual penalty?
   The starting point should be the relevant contractual clause and the actual course of performance.
2. Was the contractual performance defective?
   In the case reviewed, the absence of defects was confirmed by acceptance without reservations.
3. Did the penalty concern defects or the removal of defects, or a separate contractual obligation?
   Here, the penalty concerned periodic warranty inspections.
4. How was the expense connected with the company’s business activity?
   The company argued that contractual penalties form part of the commercial risk associated with the contracts it performs.
5. Was the interest actually paid?
   The taxpayer’s position distinguished between accrued interest and interest actually settled.
6. Does the company have documentation allowing the circumstances of the case to be reconstructed?
   In this case, relevant documentation included the contract, tender documentation, warranty terms, acceptance protocol and final court judgment.

Where the amounts involved are material, the tax treatment should be reviewed as part of tax advisory services in Poland.

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Should companies reassess contractual penalties previously treated as NKUP?

The ruling may provide a practical reason to reassess contractual penalties that a business previously treated conservatively as NKUP. It does not, however, mean that such expenses should automatically be reclassified as KUP.

The case of 13 March 2026 illustrates this point clearly. The company initially did not include the PLN 80,677.96 penalty in its tax-deductible costs, even though its subsequent position that such treatment was permissible was accepted. A review should therefore focus primarily on:

• the wording of the contractual penalty clause,
• the actual reason why the penalty was imposed,
• the nature of the unperformed obligation,
• the relationship between the expense and the company’s business activity,
• documents demonstrating how the contract was performed.

For penalties involving material amounts, such a review may reduce both the risk of unjustifiably recognising an expense as tax-deductible and the risk of adopting an unnecessarily conservative tax treatment.

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Does the Head of KAS ruling protect every taxpayer with a similar contractual penalty?

No. An individual tax ruling relates to the taxpayer that submitted the application and to the facts presented in that application. The fact that another company has also paid a contractual penalty for delay does not automatically mean that the same tax treatment applies.

The Head of KAS expressly stated that the ruling produces tax-law effects where the actual circumstances correspond to those described in the application. If a material element changes, the answer provided may cease to apply. Before relying on the conclusions of this ruling in another business, it is therefore necessary to compare, among other factors:

• the basis on which the penalty was imposed,
• the nature of the breach,
• the wording of the contract,
• the quality of the main contractual performance,
• the circumstances that led to the liability.

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What is the key takeaway on contractual penalties for delay and tax deductibility in Poland?

The change to the individual tax ruling dated 13 March 2026, reference no. 0114-KDIP2-2.4010.599.2025.3.RK, is favourable to the taxpayer that incurred a penalty for delay in fulfilling warranty obligations. Based on the facts presented, the Head of KAS accepted the company’s position that the following could be included in tax-deductible costs:

• the PLN 80,677.96 contractual penalty,
• statutory interest actually paid,
• PLN 9,451 in court costs,
• interest paid in connection with those court costs.

At the same time, the authority did not provide its own legal reasoning. The ruling should therefore not be reduced to a general rule that every contractual penalty for delay can be treated as KUP. The first step is always to establish the actual basis for the charge and the circumstances surrounding the relevant contract.

If a company has material contractual penalties currently classified as NKUP or has doubts about their Polish tax treatment, getsix® can support the assessment through tax advisory services in Poland and the correct recognition of the transaction through accounting services in Poland.

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Ruling basis:

• Change to the individual tax ruling issued by the Head of the National Revenue Administration on 13 March 2026, reference no. 0114-KDIP2-2.4010.599.2025.3.RK.

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