Natural persons may be entitled to receivables, e.g. for granting a loan. It is possible that such a claim will be sold. What tax consequences can this entail?
PIT
Pursuant to Article 10 sec. 1 point 7 of the Polish PIT Act, the sources of income are cash capital and property rights, including the sale of property rights other than those listed in item 8 letters a-c.
At the same time, according to Article 18 of the above-mentioned Act, income from economic rights is considered to include, in particular, income from copyrights and related rights within the meaning of separate regulations, rights to inventive designs, rights to the topography of integrated circuits, trademarks and decorative designs, including from the sale of these rights for a fee.
The above calculation does not explicitly indicate the receivables. However, this list is open-ended, which means that other property rights also fall into this category. In the individual interpretation of the Director of the National Tax Information of 10 July 2020 (file reference number 0114-KDIP3-2.4011.297.2020.5.JK3), it was confirmed that income from the sale of receivables, in a situation where a given natural person does not conduct business activity, is income from property rights referred to in Article 10 sec. 1 point 7 of the Polish PIT Act.
At the same time, due to the lack of special regulations, both the value of income and the taxation rules are determined on general principles. The value of the income should be determined in accordance with Article 11 sec. 2 of the Polish PIT Act. This means that revenue as the difference between income and tax-deductible costs is taxed at the rate of 12% or 32% if the tax base exceeds PLN 120,000.00. If it exceeds the revenue from the sale, we will be dealing with a loss. Only if the income from the sale of the receivables exceeds the tax deductible cost, the taxable income will occur.
As far as tax-deductible costs are concerned, one should follow the general rule set out in Article 22 sec. 1 of the Polish PIT Act, which states that tax-deductible costs are costs incurred in order to generate income or to maintain or secure a source of income, with the exception of the costs listed in Article 23.
Thus, in principle, the taxpayer’s expenses incurred to obtain the receivables will be tax-deductible. This position is confirmed, for example, in the individual interpretation of the Director of the National Tax Information of 15 June 2023 (file reference number 0114-KDIP3-1.4011.1129.2022.7.PT). Therefore, only expenses incurred for the purchase of a given receivable are tax-deductible.
In the case of own receivables, the nominal value of the receivable subject to sale will also be tax-deductible.
The above was pointed out in the judgment of the Supreme Administrative Court of 21 November 2012 (file reference number II FSK 1509/11), where it was stated: “By selling a receivable to another company, the applicant obtains revenue at the time of receiving the money from this transaction, but the lost (transferred in exchange for payment) property right in the form of a receivable is a cost in the amount of this part of the nominal value, which is subject to sale. A different assessment would lead to the sale transaction being considered devoid of purpose.”
Similar conclusions were included in the judgment of the Supreme Administrative Court of 17 December 2019 (file reference number II FSK 367/18): “The nominal value of a receivable is undoubtedly the cost incurred in order to generate revenue from its sale.”
The positions of the tax authorities are consistent with the above judgments of the administrative courts. For example, in the individual interpretations of the Director of the National Tax Information of:
· 20 June 2017 (file reference number 0111-KDIB2-3.4011.45.2017.1.SK):
“As indicated above, tax-deductible costs are not all expenses, but only those that are not listed in Article 23 and the incurrence of which is in a cause-and-effect relationship with obtaining income from a given source, or maintaining or securing a source of revenue. Taking the above into account, it should be stated that the purchase price of the receivables may be a tax deductible cost on account of property rights.”
· 17 July 2012 (file reference number ILPB2/415-416/12-2/TR):
“In the Applicant’s opinion, the tax-deductible costs from the sale of receivables presented in the description of the future event of the sale of receivables may include the amount of the loan granted at nominal value (principal amount without interest). Granting a loan is associated with the actual reduction of the Applicant’s assets, and thus with incurring the cost. Expenses in the form of the nominal value of the loans granted will be included in tax-deductible costs taking into account the provisions of Article 23 sec. 1 point 34 of the Personal Income Tax Act, i.e. up to the maximum amount corresponding to the revenue obtained from the sale of receivables.”
In other words, in the case of own receivables, the tax-deductible cost will be the value of expenses incurred to grant it (the value of the loan granted).
We recommend obtaining a positive advance tax ruling before the transaction in order to minimize the risk of a dispute with the tax authorities.
TCLT and VAT
In principle, it is considered in the case of a natural person who does not conduct business activity that in the scope of disposing of his property rights, such as receivables, it is not in a way the exercise of his property rights. Thus, it will not constitute transactions referred to in Article 7 and Article 8 of the Polish VAT Act and is not subject to VAT.
The above is confirmed, for example, by the individual interpretation of the Director of the Tax Chamber in Katowice of 8 July 2014 (file reference number IBPP2/443-367/14/JJ): “The sale of own receivables does not constitute the provision of a service, as it is only a manifestation of the exercise of ownership rights in relation to a receivable arising from another title (supply of goods or provision of services). As a consequence, a transaction involving the sale of own receivables remains outside the scope of VAT. To sum up, the sale of the own receivable will not constitute a supply of goods or paid provision of services for the Applicant within the meaning of the provisions of the Act. Therefore, this transaction will not be subject to VAT.”
A similar position was included, for example, in the judgment of the Supreme Administrative Court of 19 March 2012 (file reference number I FPS 5/11).
Therefore, due to the fact that the transaction is not subject to VAT, it will be necessary to tax it with the tax on civil law transactions (Pol. PCC). The sale of receivables as a sale of property rights is generally subject to tax on civil law transactions under Article 1 sec. 1 point 1 letter a of the Polish PCC Act. The tax rate determined on the basis of Article 7 point 1 letter b of the above-mentioned Act will be 1%. The tax base, in accordance with Article 6 sec. 1 point 1 of the Polish PCC Act, is the market value of the property right being the subject of the agreement. On the other hand, pursuant to Article 3 sec. 1 of the Polish 1 of the said Act, the tax obligation arises upon the performance of a civil law transaction. Pursuant to Article 4 sec. 1 point 1 of the Polish PCC Act, the obligation to pay the tax will be imposed on the buyer.
The above is confirmed, for example, by the individual interpretation of the Director of the Tax Chamber in Katowice of 24 July 2008 (file reference number IBPB2/436-84/08/MZ)
We recommend obtaining a positive advance tax ruling before the transaction in order to minimize the risk of a dispute with the tax authorities.
