Bad debt relief still not for all creditors

A new judgement of the Supreme Administrative Court regarding the possibility of applying the so-called bad debt relief may be interpreted as a defense of the tax authorities’ interests. The court stated that Polish regulations, which stipulate that the relief may be utilized only in cases where the  3 years period has not passed from the date of issuance of the invoice documenting the debt, are not contrary to EU law. This is a bad news for leasing companies, among others.

On 23 November 2021, the Supreme Administrative Court [NSA] issued a judgement unfavorable to taxpayers interested in taking advantage of the so-called bad debt relief. It makes possible to adjust the tax base and the tax due on the supply of goods or services in the territory of the country in the case of receivables the irrecoverabilty of which has been probable. Pursuant to the current regulations, the irrecoverability of the debt is considered probable if the claim has not been settled or disposed of in any form within 90 days from the date of its payment deadline specified in the contract or on the invoice. In addition, the possibility of taking advantage of the bad debt relief has been limited only to situations where no more than 3 years have passed from the date of issuing an invoice documenting the debt, counting from the end of the year in which it was issued. It is worth noting, however, that until 1 October 2021 this period was 2 years.

NSA dismisses the cassation appeal

In the facts of the case assessed by the NSA, the dispute focused on two questions. The first concerned whether the deletion of the debtor from the register of active taxpayers in January 2014, i.e. almost 2 years before the creditor corrected its tax returns, may constitute grounds for questioning the right to benefit from the bad debt relief. With the second question, the taxpayer wanted to know whether the right to take advantage of the relief could be limited in time by the deadline of 2 years, counted from the end of the calendar year in which the creditor issued invoices documenting bad debts. In the opinion of the tax authority, the above requirements do not violate the provisions of the VAT Directive, while the applicant company argued that it is entitled to apply the relief even if the debtor has been deleted from the register of active VAT taxpayers and it does not lose this right after the lapse of 2 years, calculated from the end of the calendar year in which it issued the invoice.

The case at first instance was heard by the Regional Administrative Court in Lublin, which, in a judgement dated 25 November 2016 (file reference: I SA/Lu 377/16) dismissed the complaint.

Consequently, the case was brought before the Supreme Administrative Court, which confirmed the position of the Court of Justice of the European Union [CJEU] as set forth in its ruling of 15 October 2021 in Case C-335/19, indicating the incompatibility with EU law of Polish regulations which made the ability to take advantage of the relief conditional on the fact that on the date of supply of goods or services, as well as on the day preceding the date of submission of the corrected tax return, the debtor was registered as a VAT payer and was not undergoing bankruptcy proceedings or liquidation, while the creditor – on the day preceding the date of submission of the corrected tax return – was still registered as a VAT payer.