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

A contractual penalty for delay may be tax-deductible in Poland if its actual basis does not fall within the exclusions under Article 16(1)(22) of the Polish Corporate Income Tax (CIT) Act. On 13 March 2026, the Head of the National Revenue Administration (KAS) accepted the deduction of a PLN 80,677.96 penalty for delayed warranty inspections, paid statutory interest and PLN 9,451 in court costs with related interest. KAS provided no separate legal reasoning, so the ruling does not create a general rule for all contractual penalties.

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When can a contractual penalty for delay be tax-deductible?

The case concerned a Polish company supplying, installing and commissioning an Uninterruptible Power Supply (UPS) system. The main contractual work was completed correctly and accepted without reservations.

During the 60-month warranty period, the company treated periodic inspections as separate paid services, while the customer considered them included in the lump-sum remuneration. The court agreed with the customer.

The contract imposed a penalty of 0.02% of the gross contract value for each commenced day of delay. The total penalty reached PLN 80,677.96. In its judgment of 31 October 2024, the court also awarded statutory interest and PLN 9,451 in court costs, together with interest.

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Why does the distinction between defects and delay matter?

The company relied on Articles 15(1) and 16(1)(22) of the Polish CIT Act. Article 16(1)(22) excludes certain penalties and damages relating to defects in goods, works or services, delay in delivering defect-free goods and delay in removing defects.

Here, the penalty did not arise from defective main performance or delayed defect removal. It resulted from a delay in periodic warranty inspections, while the UPS system itself had been accepted without reservations.

The Head of KAS accepted the taxpayer’s position on the penalty, paid interest and court costs, but provided no separate legal reasoning.

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What should tax and finance teams verify?

Tax treatment should not depend only on an expense being labelled a contractual penalty. The assessment should cover:

• the contractual clause and precise reason for the penalty,
• the nature of the breached obligation,
• whether the main performance was defective,
• the link between the expense and business activity,
• whether interest was actually paid,
• contract, acceptance and dispute documentation.

The company initially classified the penalty as NKUP, a non-tax-deductible cost, while paid interest and court costs were treated as KUP, tax-deductible costs. The ruling may justify reviewing similar classifications, but not automatic reclassification.

Rulings dated 30 July 2026 and 6 August 2026 also took a favourable approach to delays unrelated to defective performance. Each case still requires separate assessment. The ruling of 13 March 2026, reference 0114-KDIP2-2.4010.599.2025.3.RK, applies only to the taxpayer and facts presented in the application.

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If you have any further questions or require additional information, please contact your business relationship person or use the enquiry form on the HLB Poland website.

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