On 5 October 2026, the Polish Supreme Administrative Court (NSA) ruled that a contractual penalty (kara umowna) paid due to withdrawal from a contract or non-culpable delay in service performance can be recognized as a tax-deductible cost for Personal Income Tax (PIT) purposes. The Court held that such penalties, when incurred in connection with business activity, meet the criteria of costs incurred to achieve revenue or preserve its source. This interpretation expands the scope of deductible expenses for sole proprietors and partners in partnerships, providing relief for commercial risks inherent in contractual relationships.
Key Takeaways
- Penalties for Breach Deductible: Contractual penalties paid for withdrawal or excusable delay qualify as business costs.
- Business Connection Required: The penalty must relate to the taxpayer’s revenue-generating activity.
- Relief for Entrepreneurs: The ruling mitigates the tax impact of commercial disputes and force majeure events.
Disclaimer: This article is compiled and summarized by the AI based on publicly available information and is for general information purposes only. It does not constitute any form of formal tax advice, legal opinion, or basis for performance. Please consult a qualified professional tax advisor or legal counsel for tax advice.
Source: Read Official Announcement